Extremely low initial unemployment claims have an ominous track record. Record low claims suggest a distorted, overheated, bubble top economy. On both occasions in this century when claims have reached a similar percentage of total nonfarm payrolls at this time of year, the stock market has subsequently collapsed within a few months.
The overheating that has been indicated in the claims data for months has begun showing up in other data, including today’s ISM Non Manufacturing survey, which reached a level last recorded in 2005 as the housing bubble was screaming toward a peak. The excesses and distortions are real in certain sectors of the economy, while others get left behind. In any bubble economy, when the sectors that are in the most extreme bubbles begin to weaken, it has been only a matter of time until the entire bubble driven economic house of cards collapses.
The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended August 30 was 302,000. That was just 2,000 more than the consensus guess of Wall Street economists. It was such a good guess that it rendered the Wall Street game of expectations versus announced data moot this week, especially given the much more important news out of the ECB, which announced that it would begin outright purchases of asset backed securities in October. That will undoubtedly lead to more asset inflation, but that’s another story.
In the big picture for unemployment claims, the actual, not seasonally finagled numbers, which the Wall Street captured media ignores, shows claims still near the levels reached at the top of the housing/credit bubble in 2006. That’s after nearly 12 months of nearly continuous record readings. Since September 2013 when the number of claims first fell to a record low, the data has suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.
