Wednesday, November 25, 2009

Why You Can't Trust U.S. Weekly Jobless Claims

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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The market was ecstatic with the November 25th U.S. weekly jobless claims figures. According to the report the number of Americans filing for unemployment fell 35,000 from the week before, dropping to 466,000. Bullish headlines such as "Jobless Claims Plummet to 14-Month Lows" were all over the web. Commentators immediately started gushing about unemployment turning around and job gains being just around the corner. Stock futures perked up, the U.S. dollar continued a sell off already well underway, and gold which had been rallying strongly turned down on the news.

As for myself, I stopped paying attention about 15 years ago to the weekly jobs claim number the week of the release. Why? At that time, there was also an unexpected major drop in the claims figures. The markets went crazy on the news. One week later, the number was revised sharply upward with a statement from the BLS (Bureau of Labor Statistics) that one state had not gotten their figures to the department a week earlier so they hadn't been included in the totals. While the BLS knew this at the time, it did not inform the public of this important inaccuracy. The error was quite substantial as well, since the state that didn't report was obviously California. It should also be noted that the November 25th report was released on a Wednesday, one day earlier than usual, because of the Thanksgiving holiday on Thursday. It is quite possible not all the state data came in early enough to be included.

At the same time the weekly jobless claims were released, the monthly Durable Goods and Personal Spending reports also came out. Durable goods declined 0.6% for October indicating a weakening economy. A drop in defense spending was blamed (just another form of government spending propping up the U.S. economy). However, orders for cars, machinery (needed for factories), computers and communication equipment (both needed for offices) also fell. Personal spending was up 0.7% in October. This is hard to believe considering U.S. consumer credit has had a major drop in the last year and the over 10% unemployment rate has negatively impacted consumer income. Where is the money coming from for the increases in spending?

The most significant market action on the release of all this data was the falling U.S. dollar. The trade-weighted dollar cut through the recently established 75.00 support level and traded as low as 74.40 in early morning New York trading. There is a strong band of support between 72.00 and 74.00. Expect a bounce off the top of that band initially, with an eventual test of the 2008 low around 71.50. While the dollar hit another yearly low, spot gold hit another new all-time high, trading up to $1183.80. Expect to see more of the same in the future.

Disclosure: Long gold, no dollar positions. Long time critic of the BLS.

NEXT: Desert Bubble Bursts, Blows Sand in Market's Face

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.