We are seeing more seasonality adjustments fun and games from the US Department of Labor. The drop in the initial jobless claims was so large, it looks suspicious. Lee Adler has a detailed write-up (here) on seasonality adjustments following last Friday's employment report (discussed here - and yes, the post contains all sorts of Bloomberg charts). The premise is that this drop actually happened earlier (which explains the sharp decline in the unemployment rate last week) and is only now showing up in the numbers. Either way, it is certainly a welcome development for the US economy.
|US DoL Initial Jobless Claims|
Nevertheless there is considerable confusion and a healthy dose of skepticism in the investment community around this claims number. Is it possible that claims from a large state were misreported or not included altogether?
Michael Block (Phoenix Partners) : All of these Illinois jokes aside, given the size of the drop in claims, the thought is that California was omitted from the data.A Reuters story hints at something similar as well.
Reuters: - A Labor Department analyst said seasonal factors had predicted a very large increase in claims last week, which he said would be typical for the first week of the quarter. Unadjusted claims did rise, but far less than expected, resulting in the sharp drop in the seasonally adjusted figure.Later in the day the Labor Department attempted to clear some of this confusion:
He noted that one state reported a decline in claims last week when a rise had been expected. No states had been estimated for the report, he said.
"We will likely see some payback in the claims data reported next week. But through this potential volatility, it does look like the trend in the claims is improving somewhat," said Daniel Silver, an economist at JPMorgan.
California, given its large population and past "massive swings" in its claims data, was probably the state that caused the sharp drop in the seasonally adjusted figure, Silver said.
FoxBusiness: - Later Thursday, another Labor Department spokesman issued a statement in effort to clarify what the agency described as “confusion” over the data. The latter statement seemed to refute the department’s earlier explanation.Of course rumors of a conspiracy to cook the numbers continue to persist, particularly as we near the VP debate (tonight). It's not clear however how that would help the Obama camp, given more presidential debates coming in weeks that follow. Surely any improper adjustments will reverse themselves over the next month.
“The decline in claims this week was driven by smaller than expected increases in most states and because of drops in claims in a number of states where we were expecting an increase,” the statement said. “No single state was responsible for the majority of the decline in initial unemployment insurance claims.”
KPCC (Southern California): - The most recent government jobs report, for September, saw the national unemployment rate fall to 7.8 percent, setting off a flurry of conspiracy tinged speculation that the Obama administration had somehow cooked the numbers, after the President fared poorly in his first debate with GOP challenger Mitt Romney.And then there is anecdotal evidence that some large US farms, who have been unusually busy with an early harvest due to the summer drought, have picked up extra help - reducing jobless claims in the process.
The claims number, coming on the same day as the Vice-Pesidential debate, will probably get the same treatment.
Whatever the case, if this decline is indeed real and permanent, it could signal a turning point in the US recovery. It's amazing how the Fed can fix the US employment situation in a month with the magic wand of QE (which is of course what they will ultimately claim). Many economists however remain skeptical.