Jobless Claims Return to Reality

Weekly Initial Jobless Claims jumped by 46K in the latest reporting period, but it comes after the prior week’s sharp decline of 30,000. So where does the truth lie?

Just reported today, Weekly Initial Jobless Claims for the week ending October 13th, increased by 46K, rising to 388K. It was a notable jump in claims, but it came after a substantial decrease the week before, which took claims to a level not seen since early 2008. Many simply accepted the data for the truth, while others, including yours truly, were highly skeptical. Over the course of the last week, the Department of Labor and the media helped to uncover the truth, though in a less than perfectly fluid manner.

As it turns out, because the unemployed are required to recertify their state of unemployment at the start of a quarter, it can lead to swings in the first few weeks of data reporting. It seems that in at least one state, this certification period may have shifted by a week, causing the last two weeks of swing. While representatives of California last week refuted claims that some of its reporting regions had not reported claims, perhaps this explains why California, which usually posts increased adjusted numbers at the start of a quarter, posted a decrease last week. Again, this is only theory.

Now, if you want a more solid number to base your perspective on, take note that the four-week moving average for jobless claims only increased by 750 in the latest period, to 365,500. Still, even the four-week figure would seem to be skewed, and should increase after last week’s low count ages out.

What we’re left with after the dust has settled is a labor situation that seems to better reflect the true state of the labor market today. Still, that true state is again fogged by the reported decrease of insured unemployment to 2.5% in the week ending October 6, from 2.6% the week before. The Bureau of Labor Statistics today said the number of unemployed Americans receiving benefits fell by 29,000. The number of people receiving a benefit of some sort fell by 42,664 in the week ending September 29, to 5.0 million. Of course, much of this is due to the long-term unemployed exhausting their benefits and falling out of the labor force count. We have covered this fact time and again, and once more in our report entitled, “The Under-Employment Rate Shows Same Misery.”

The market as illustrated by the ETFs measuring the movement of the S&P 500, Dow Jones Industrials Average and the NASDAQ, are relatively unchanged through midday Thursday. That’s probably because the bad news reported for the labor market contrasts with the better than expected Leading Economic Indicators Index.

INDEX ETF	Midday Change Thursday
SPDR S&P 500 (NYSE: SPY)	+0.1%
SPDR Dow Jones Industrials (NYSE: DIA)	+0.2%
PowerShares QQQ (Nasdaq: QQQ)	-0.1%

While reporting earnings, many companies are also announcing layoffs. Today it was Abbot Labs (NYSE: ABT) saying it would cut 550 jobs. Newsweek, owned by IAC/InterActiveCorp (Nasdaq: IACI), declared it would stop publishing its iconic magazine and go to digital only distribution, which means layoffs are pending. Layoffs are expected at Advanced Micro Devices (NYSE: AMD), rumored at eBay’s (Nasdaq: EBAY) Paypal unit, and being delayed at a Whirlpool (NYSE: WHR) development center due to attrition of employment ahead of the planned cuts. I continue to expect the weight of global economic issues to weigh on our economy further, along with the effects of the fiscal cliff crisis pending, and/or an energy crisis catalyzed by war with Iran. So, I continue to warn that some sad Thursday morning, when claims exceed 400K, stocks may retract more meaningfully.

Last week, when the low jobless count was reported, the shares of most employment services companies rallied. This week, the shares of major players are mixed on a significant degree of company specific data, so we’ll leave those numbers out of this report. For future coverage of the regular labor data points follow my column.

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