Jobless Claims Hardly A Positive Indicator

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by: Carlos X. Alexandre

With every passing week everyone hopes that this “titanical” economy is turning around, and I am certainly one of them. Without a doubt, the decline in jobless claims for three weeks running does deliver that ray of hope, but the data has to be put in context. The improvement is marginally better than it was one year ago – 364k vs. 420k – when one considers that the unemployment rate dropped from 9.8% to 8.6% during the same period.

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The chart above depicts where we are in terms of jobless claims, and on the surface it appears that the improvement is well pronounced. But one factor that appears to be missed is that over the last year alone, close to 2 million people exited the workforce – and those individuals cannot file claims. In addition, if one takes into account that the holiday season usually creates demand for temporary workers, the numbers don’t provide much reason to celebrate.

Lastly, and to highlight the underlying weakness, I turn to the USDA’s Supplemental Nutrition Assistance Program report dated December 1, 2011, and over the last year there was an increase of over 2 million receiving food stamps. Thus, when jobless claims hit the 200k level, and considering all the data, I will then entertain the notion that the worst is over.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.