Adding the claims and PPI reports together: Claims suggest Fed may taper soon if the labor market is indeed improving (with companies hiring part-time workers), while the PPI confirms that at least according to the BLS, inflation is nowhere to be found, suggesting much more QE in stock.
Initial Jobless Claims spike 66k this week, to its 2nd highest print of the year. For 5 weeks in a row we have see initial claims slide lower as the market celebrated multi-year lows and rallied on recovery hopes... and now it's all gone. Continuing claims has also missed expectations for the second week in a row. The Labor department explains this credibility-destroying data as due to the government shutdown and to "glitches" in the California computer system (which were supposedly resolved two weeks ago when the claims number was printing in the mid 200k range) as well as due to 15,000 non-Federal workers filing claims (being fired) due to the government shutdown. Of course, anyone fired in the past week can and likely will say they were fired due to the shutdown. The market shrugged off this data as irrelevant, which it is for the simple reason that initial claims reporting, now flawed for 5 weeks in a row, has become the latest "data" set to succumb to total farcism.
As reported previously, the latest meme surrounding the D.C. impasse is that Obama is suddenly willing to compromise on a short-term, supposedly six-week funding and debt ceiling extension, on the verge of his latest talks with republicans at the White House scheduled for this morning, as previously floated by the GOP. Throw some additional headlines such as "Ryan steps up to shape a deal" (in line with what we predicted yesterday) and "The ice breaks; fiscal talks set", by The Hill, and "GOP quietly backing away from Obamacare" from Politico, and one can see why futures are in breakneck soaring mode this morning, driven as usual by the two main JPY cross (USD and AUD), the first of which is less than 100 pips now away from being Stolpered out. So will a compromise deal finally emerge 7 days ahead of the first X-Date, or will a last minute snag once again derail the (non)-negotiations? We will know quite soon.
While all other government data releases are halted, the DOL has been kind enough to keep its Initial Claims random number generator running, and this week, following several weeks of "computer system update" distortions, reported the fifth consecutive week of expectations beats with a print of 308K, below the 315K expected, but above the upward revised 307K from last week. Alas, the number is once again completely meaningless as the DOL said Federal furloughs will not show up in claims data, which means that all of the up to 800,000 newly filing government workers will remain completely under the radar, and forcing even more people to wonder just what is the utility of any government data, even when the government is generous enough to not be shut down. Equities did not move at all on the news but gold and bonds are rallying.
Despite the last 2 weeks of 'systems upgrades' being responsible for lower-than-expected jobless claims data, the smart analysts and strategists had lower expectations to 325k - the lowest in 6 years - and sure enough claims beats expectations and prints 305k (for the 4th week in a row - 2 of them with broken systems). This is a drop of 5k from last month's entirely made-up data as we note that once California (among the biggest contributors to the claims data) has caught up with its backlog - so theoretically this is a 'real' data point. Continuing claims ticked up by the most in 2 months.
The last 2 weeks have seen the biggest drop in initial jobless claims in 3 months as today's print is within a smidge of six year lows. Continuing claims also fell close to 5.5 year lows. All good healthy "Taper-On" news ahead of the all-important NFP. However, the only fly in the ointment as far as celebrating this 'renaissance' remains productivity gains and the ongoing slump in unit labor costs (which missed expectations of an easy-money earnings-growth generated +0.8% gain and came in at a dismal 0.0%). Simply put, all the hope of wage inflation providing the self-sustaining glue to hold this 'thing' together post-Fed-Taper is fading fast as the liquidity pipeline remains unerringly clogged.
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.
While largely noise in the context of the big picture, last week's multi-year low in initial claims of 320K (revised upward as usual to 323K), driven in big part by the specific furlough situation at the automakers, reversed and rose by 13K to 330K, or 6K higher than expectations. This was the highest claims number since July 19, the biggest miss to expectations and also the largest weekly jump in 6 weeks. Notably, the entire move was due to seasonal adjustments: the unadjusted claims number declined even more, dropping from 283K to 279K, although with the market at a point where bad news is desperately needed to provide even the tiniest bounce to risk, the adjustment is now meant to distort the underlying data lower not higher.
While the utility of initial claims data in a regime dominated by 70% retention of part-time workers and in which even the Fed says the distortion of the labor force participation rate makes unemployment numbers skewed to the downside, those who follow the weekly claims number will be happy (or maybe sad) to learn that there were 333K new initial claims filed in the week ended August 3, just 2K below expectations and 5K above last week's upward revised 328K (from 326K). No states claims were estimated in the past week the DOL reported. The good news: the four-week average fell to the lowest since November 2007. The bad news: this number is hardly horrible enough to send futures soaring.
If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008? That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again. Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009. It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around. We have been living so far above our means for so long that most of us actually think that our current economic situation is "normal."
Another week, another prior revision down and rise week-over-week in the initial claims data but the print was a modest beat. The smoother 4-week average has now hovered around 345k for 9 weeks as the down-trend of the year-to-date appears to have stalled (for now). Continuing claims dropped back from its July 4th aberration. We worry that with top-line revenues missing significantly in the most recent earnings season, firms will be left once again with only one option to meet Wall Street's EPS demands and wonder if the flat trend in claims for over 2 months now reflects that wait-and-see mode for layoffs (or hirings).
Everything is going to be just great. Haven't you heard? The stock market is at an all-time high, Federal Reserve Chairman Ben Bernanke says that inflation is incredibly low, and the official unemployment rate has been steadily declining since early in Barack Obama's first term. Of course we are being facetious, but this is the kind of talk about the economy that you will hear if you tune in to the mainstream media. They would have us believe that those running things know exactly what they are doing and that very bright days are ahead for America. And it would be wonderful if that was actually true. Unfortunately, as I made exceedingly clear yesterday, the U.S. economy has already been in continual decline for the past decade.
In a world where bad news is good, the last thing stocks needed to put a dent in the latest spin that the September taper may be moved to December, was an improvement in claims - which is what they got moments ago when the DOL reported a big claims drop from a downward revised 358K (so it does happen) to only 334K, beating consensus of a 345K print. So Taper back on right? Not so fast. The pre-spun narrative is that July data is very "liquid" with car makers and factories either laying off (or not) workers more (or less) compared to historical seasonal patters. Indeed, the unadjusted claims number rose from 383K to 409K signifying that the only improvement was in the eye of the X-12-ARIMA seasonal adjustment bemodeler. And furthering the No-Taper cause were continuing claims which soared to 3.114 million, up 91K from the prior week, the largest 1 week jump since November, and up from the 2.953 million two weeks ago: the biggest 2 week jump since February 2009. Judging by the stock market reaction, where futures have jumped on the news, the GETCO algos have shifted back into good news is good news mode. For confirmation, we will have to see the Philly Fed today, where we expect either a huge beat or huge miss to both be catalysts for fresh all time market highs.
Not much in terms of economic data but lots of corporate news with the official Q2 earnings season kick off, as well as a plethora of Fed speakers which in a centrally-planned world, is all that matters.
Those expecting a massive, epic miss in Initial Claims to keep the critical Baffle with Bullshit narrative going into NFP, did not get it, with Initial Claims printing at 343K, in line with expectations of a 345K print, following the obligatory upward revision in last week's print from 346K to 348K. Continuing claims dropped from an upward revised 2987K to 2933K, below expectations of a 2958K number. And as has been the case for the past year, Americans collecting Emergency and extended claims continue to drop, with 1 million less Americans on EUCs now, at 1.66 million, compared to the 2.62 million a year ago. These are all people who ultimately drop out of the labor force and lead to a "better" unemployment rate. And while ADP and Claims were better than expected, it was the trade deficit that offset the good news, soaring 12% from a revised $40.1 billion to a whopping $45 billion, far above expectations of $40.1 billion, the worst miss in 7 months, and dragging all Q2 GDP forecasts lower with it. This was driven by a drop in exports of $0.5 billion offset by an increase in imports by $4.4 billion. The total May imports were $232 billion - the highest since March of 2012.