Initial Claims Soar to 388k, More Distortion Increases Coming: RBS

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Initial jobless claims jumped to 388,000 in the week ended October 13, the payroll survey period. However, this surge followed an abnormally low number the prior week (342,000). The four-week moving average barely budged, inching up to 365,500 from the prior week’s 364,750. In other details of the report, continuing claims fell 29k to 3252k after the prior week was revised up +8k. This had the effect of lowering the 4 week moving average 5k to 3276k, the lowest level since May

Filtering out the week-to-week volatility, claims have remained range bound between 360,000 and 380,000 since early July, and the underlying pace of layoffs appears to be stable. However, the hiring side of the equation remains muted, probably due to ongoing uncertainty.

Initial Claims Soar to 388k, More Distortion Increases Coming: RBS

A Labor Department analyst explained that the unusual behavior of claims over the past two weeks was driven by California (as some had suspected). Some of the claims California would normally report during the week ended October 6 (last week’s release) were instead reported during the week ended October 13 (this week’s release). On net, the analyst said that the level of claims is around what the seasonal adjustment factors would have expected.

Absent this statistical distortion, Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) economists estimate claims remain around the 370k level, which is still close to the low end of the range for the year. The insured rate of unemployment fell one tenth to 2.5%, after 29 consecutive weeks at 2.6%.

Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) states that some of the data is cause for concern. The fact the insured rate fell to a new cyclical low corroborates some of the recent decline in the unemployment rates over the past two months. Today’s data takes on added significance, as they coincide with the survey period for nonfarm payrolls. We continue to expect 100k on headline nonfarm payrolls (110k private) and a one tenth increase in the unemployment rate to 7.9%.

Royal Bank of Scotland Group plc (LON:RBS) (NYSE:RBS) analysts, Guy Berger, Michelle Girard, and Omair Sharif, note something important. This week’s number included the Columbus Day holiday, which may have introduced additional distortions to the data. Typically, the seasonal factors struggle to overcome volatility generated by the many holidays around year end. Looking ahead, this will present a challenge for getting a clean read on claims between mid-November and mid-January.

If numbers are distorted, this report could be evidence that the labor market is not improving, contrary to the general consensus and strong recent economic data.

Jack Welsh declined to comment on the report from the Bureau of Labor Statistics this morning.


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