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Goldman Demolishes Jobless Claims Hype: "This Does Not Signal A Booming Labor Market"
As we pointed out previously, the growing convergence between BLS-reported initial jobless claims (at 42 year lows) and reported job cuts (highest since 2009) suggests someone is lying. It appears we have found the cuplrit as Goldman Sachs confirms that changes in gross labor market flows (e.g. gross hires and quits), as well as changes in the unemployment insurance benefit take up rate, affect the relationship between jobless claims and employment growth over the cycle. For this reason, today’s low level of jobless claims should probably not be taken as a sign of a booming labor market.
As we summed up previously, Challenger says worst layoffs since 2009, as BLS says claims almost non existent.
Something changed when QE3 ended...
And now Goldman Sachs confirms...
Although payroll employment growth has slowed in recent months, initial claims for unemployment insurance benefits remain very low. The four-week moving average of initial claims has trended lower again this year—despite meaningful layoffs in energy-producing states—and is currently at the lowest level since early 2000 (Exhibit 1). Does this mean that the current rate of nonfarm payroll growth understates the strength of the labor market?
Not necessarily. As we have noted in prior research, the structural relationship between jobless claims and employment growth changes over the business cycle. Unemployment insurance claims are an observable proxy for one type of labor market flow: the number of persons laid-off each month. However, employment growth is a function of other flows as well—specifically, the number of persons hired, the number who quit voluntarily, and those who separate from employment for other reasons. These other types of labor market flows—other components of Fed Chair Yellen’s labor market “dashboard”—can affect the relationship between layoffs and employment growth over time.
Moreover, initial jobless claims are an imperfect measure of layoffs because the propensity to file a claim—often called the “filing rate” or the “take up rate”—also changes over time. During the financial crisis, for example, the benefit take up rate increased significantly. Exhibit 2 shows the level of jobless claims alongside the measure of total layoffs from the Job Openings and Labor Turnover Survey (JOLTS) (claims here are expressed as a monthly rate by multiplying the average weekly rate by the number of weeks per months). Before 2007, approximately 70-80% of layoffs resulted in an unemployment insurance benefit filing. During the recession, claims increased more rapidly than reported layoffs, implying an increase in the claims filing rate. In the years since, claims have fallen much faster than layoffs, implying a decline in the benefit take up rate.
Because of these confounding effects, it can be helpful to think of a “breakeven rate” for jobless claims—or the level of claims consistent with zero employment growth. We can arrive at this figure by using the identity that relates gross labor market flows to changes in employment:
Change in Employment = Hires – Quits – Layoffs – Other Separations
If we then express layoffs as jobless claims multiplied by the inverse of the take up rate, we can write the breakeven level of claims as:
Breakeven Claims = (Hires – Quits – Other Separations)*[Take Up Rate]
This definition says that the breakeven level of jobless claims rises with the benefit take up rate and with the number of new hires, and declines with increases in quitting and other separations.
Exhibit 3 shows our calculated breakeven rate for jobless claims, which we derived using data from the monthly JOLTS reports through July (we smoothed the breakeven rate for the purposes of this graph). Over the last few years, the breakeven level of jobless claims has steadily declined, reflecting an increase in job market separations (including quits) and a lower benefit take up rate. These trends were partly offset by an increase in gross hires. While it’s encouraging that unemployment insurance claims remain very low, they are not a sufficient indicator of labor market conditions. And at the moment, the raw level likely overstates the underlying pace of job growth. The gap between claims and their estimated breakeven rate—likely a better indicator of job market health than claims alone—points to payroll growth of about 160-200k per month, or only slightly above the run rate over the last two months.
We think this is a more realistic signal to take from the current level of jobless claims.
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Goldman must be short
This is great and all, but what I want to know is what Dennis Gartman thinks.
See, I've given up caring about politics or unemployment or really ANYTHING that doesn't directly put money in my pocket.
DENNIS GARTMAN PUTS MONEY IN MY POCKET. He says it, I do the opposite. More of him, please.
No duh....
Anyone with half a brain knew this eight years ago...
I only have 3/8ths of a brain, and even i knew it...
But, I see Goldman people on TV all the time. Are you on TV? No, you are not on TV. So there!
Goldman must be short
What does Dennis Gartman say?
Look, I don't want this to be taken the wrong way, and I hope this doesn't come off as callous and uncaring, but why the FUCK all these posts about people who just don't matter? Surely Goldman could share something relevant - maybe pictures of Lloyd's fabulous summer home, or selfies taken at their last yacht party.
That information / entertainment is only available to Club subscription members.
(Remember, it's the BIG (self-worth) Club, and most of us are NOT in it . . !)
Tim Cock from APPLE will send an email like he did when the Market was crashing and save the day. Tim always gives Firm Guidance.
According to my research, markets move in cycles, of which the table of 7 days (5 trading days) plays an important role. For example, when the 21, 35, 42, 63 day cycle line up, it’s Time to get ready for a change in trend (S&P500).
http://tripstrading.com/2015/10/09/sp500-how-cycles-take-their-time/
Today, OCT 8, points at a 7, 21, 42, 119 and 154 day cycle (TripsTrading Cycle Model, TTCM).
Tomorrow and Saturday represent a Bradley Model Date, OCT 9 and 10. According to the Bradley Model: October 9-10 – On these two Days there are very strong turns in both the Middle Terms and Declinations, and this could result in an especially strong turn.
If the total cycle lasts 63 days, the decline will last till OCT 26. The 1850 -30 Price Target is based on the Negative Reversal of SEP 30.
So the cycles seem lined up to change the short term trend.
According to my research, markets move in cycles, of which the table of 7 days (5 trading days) plays an important role. For example, when the 21, 35, 42, 63 day cycle line up, it’s Time to get ready for a change in trend (S&P500).
http://tripstrading.com/2015/10/09/sp500-how-cycles-take-their-time/
Today, OCT 8, points at a 7, 21, 42, 119 and 154 day cycle (TripsTrading Cycle Model, TTCM).
Tomorrow and Saturday represent a Bradley Model Date, OCT 9 and 10. According to the Bradley Model: October 9-10 – On these two Days there are very strong turns in both the Middle Terms and Declinations, and this could result in an especially strong turn.
If the total cycle lasts 63 days, the decline will last till OCT 26. The 1850 -30 Price Target is based on the Negative Reversal of SEP 30.
So the cycles seem lined up to change the short term trend.
As said from the Hamptons....
Good analysis. Adjusts for the big difference between this cycle and pre-2008. In earlier cycles Claims fell because people were getting jobs. In this cycle Claims are falling because people are running past end of Benefits. Apples and Oranges.
the fact that these dickheads (fed governors, presidents, clowns) are going around talking about how 100,000-150,000 jobs a month NOW is considered "good" tells u all u need to know about these jackasses. throw-in that the QUALITY of these jobs suck (follow the breadcrumbs to the lack of income increases, wage inflation) and you don't have to be a rocket scientist to figure out whats going on here. not to mention we're paying $1 trillion ABOVE what we bring in a year just grow around 2% while creating 2 million subpar jobs a year & when u roll this cookie dough together, it fucking stinks to high shit.
problem is what needs to be done most likely will never be done. what NEEDS to be done is 1 MASSIVE sequester cut of all cuts across the board (15-20%) for starters. EVERY program takes a haircut to get us spending 10-20% BELOW what we are bringing in so we can start paying down the prinicipal on the debt. whoever does this will get blamed for the contraction in the economy. only other way to offset that would be to jack taxes & thats gonna slow innovation/natural job creation. either way, the economy is going to HAVE TO slow IN ORDER TO get it RIGHT for the long-term, get on a track towards solvency.
the american people are too fucking stupid to understand this + the ME, ME, ME, NOW, NOW, NOW mindset doesn't allow the majority out there to GET where we are headed should we stay on our current trajectory.
When you pay debt down, you destory capital in a debt based monetary system. If you want the money supply to grow you have to increase debt. That is why the National Debt will never be paid off, it can't be.
Spending cuts are generally referred to as the principle of Austerity.
Historically speaking (i.e. in the last 10-20 years), these policies have been a tremendous failure.
If I told you that, paradoxically, the government needs to spend *more* in order to end this recession/depression, you would look at me like I was crazy, right? That's because you would be equating government debt with household debt. But governments are not households. Government debt is an imaginary book-keeping entry that doesn't exist in reality. (Exceptions to this exist).
Your plan sounds like it would make sense, and interestingly, its this same idea that many have been trying for 10-15 years, and each time it just wreaks more economic havoc. People here refer to QE as being cause of the recession, if they do say that, because they don't understand and are just railing against government. Its an easy target.
Okay, something's up. The squid telling the truth (or something very close to the truth).
It's Goldman's convoluted way of justifying and demanding more QE.
short GS at monday 3PM blindly
Lavorgna and Liesman said 50 Million New Jobs will be announced . . . . . . any month now.
I hate to say it, but this is the type of piece that makes financial blogging sites and Goldman Sachs' Investment Research Division look dumb for "overthinking it", "overcharting it", etc. Just apply common sense and it can be readily explained.