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Jobless Claims - When all other stats are adjusted, the misleading exception

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June 05, 2008 – Comments (1) | RELATED TICKERS: BAC , JPM , COF

The first things first...... Jobless claim filings happen in a government office..... Last week was Memorial day....ergo...

Anyway a little more in depth.

Seasonality
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There is a very pronounced ( statistically significant) seasonality in Unemployment claims. If you go by Econometric Time Series analysis - the seasonal component of the Claims actually peaks around Q1 and then starts going down slowly  over the summer. It plateus thru July-Aug and then starts creeping up again.

Holidays, and work-week have clear impact on # of claims filed. Depending on the day Memorial dya, 4th of July( minimal effect - since that is observed on the day) , Labor day, Thanksgving ( thats a no brainer , aint it?).  Memorial day has one of the biggest effects - obviously Thanksgiving is the highest - due to 2 days.

The reason of this is also not very fuzzy. Traditionally, due to pick up in Construction and other summer labor activity - claims fall. Winter is bad and actually due to trailing effect - shows up big before spring. 

Impact
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You must have guessed by now where I am going with this...claims are running around 375K, this week I think it was down to 357K......Next week it will shoot up big.....and 400K+ filings takes it close to real worrisome territory. Also interesting to see whether real Unemployment will be able to mask the seasonal effect- What construction, one may ask - actually a lot of builders are still building, so who knows

Additionally, there's some tepid positive correlation of claims with impending Bankruptcy filings. Claims going up actually is a forewarning for Credit Cards and other Consumer Finance companies which deal with Unsecured credit. This effect has definitely changed with the new Bankruptcy law - however, while it gives Unsecured lenders some breathing space - it cuts both ways. Essentially the balance builds with fees etc piled on top and previously all the flush out of unsecured would actually translate into some benefit for Home lenders. Now Home Equity is going to bear the brunt of this - with Bankruptcy becoming not an easy option - the credit hit will migrate up the product chain.

Also watch out for political action on this front - to allow some Bankruptcy protection - can mean interesting things for the Banks. 

  

 

 

 

1 Comments – Post Your Own

#1) On June 06, 2008 at 8:59 AM, binv271828 (< 20) wrote:

anchak,

Good post! These jobless numbers do indeed show a worrying trend. However, what kills me when trying to use this and the unemployment data from BLS and ADP is that it is always suspect and has an "optimistic" spin. Everytime I hear a justification for the bogus "birth/death" fudge factor being used for each report, I just have to roll my eyes.

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