Thursday, July 23, 2015

Claims Redux

The writing was on the wall a long time ago for the claims data released this morning.  Sorta cute folks are "discovering" claims data now when its key importance started around this time July 2012.  Claims data then was the most important key input for Bernanke (along with how it was picked up in the new "spider graph" the Atlanta Fed started doing) such that he started the Fed towards a traditional tightening phase, ending QE and setting the stage for the end of ZIRP.  He was cut off at the knees by the politicos like Bullard, Yellen, and English and the "true believers" at the Chicago, Minneapolis, and Boston Fed.  So the end of QE became a "taper" and what I think was to be the first rise in Dec 2013.  Was all inspired by claims.  And in particular claims over the July auto refit week as 2012 was the first year many of the auto and auto parts plants did not shut down as auto sales started their surge towards 16MM annual sales rate.

While tech and finance will end  the USA biz cycle - the biz cycle recovery is accomplished by autos and housing.  This makes the July refit period of great importance in a recovery.

The claims data carried on after the 2012 refit surge, and as BLS calibrated the monthly surveys to the claims data, we had the early fall UER  surge through 7% in UER that left Jack Welch sputtering (he was right, the data was being manipulated, just he had the sign wrong, it should have dropped all the way towards 6% then.

The babble of the power play, to wrestle the Fed from economic data carried on, deeply entrenched by the time of Bernanke retirement.  I believe the BLS was coordinating with this group at the Fed  to put a drag in improving the monthly data.  BLS also had a huge problem as they capped UER at 10% when it should have gone on towards 12% or even 13%, so there were about 2 MM Labor Force reduction made in 2009 to 2010 that was being carried like a bad trade in the drawer.  Pity that, as I think that was the main reason the Democrats lost Congress to the GOP midterm as the economy was already in solid shape but depicted by the Fed and others as still in dire shape.  Greece Crisis I was also covering the huge US econ improvement as well as a completely contrived US budget crisis. Obama was now full throttle in one of the most sincere austerity movement of any POTUS prior and considering how little time had passed since the worst solvency crisis in a century, was a bizarre policy.  This is still Obama's economic policy, just he is lightening up on the brakes.

So the end was with Bernanke stifled, Obama's austerity, Greece, the fogging of the monthly data by the BLS for whatever reason, and new GOP dominance of Congress, the massively improving status of the US econ and the labor market was missed.

This became even more apparent in 2014 as the 1stQ weather hit immediately threw cold water on the bulls and then the roar of 2nd Q with obvious significant inflation showing the Phillips Curve is still with us and is axiomatic.   But then oil was crushed and the last phase of the "currency war" kicked in, especially German influence to drop the Euro towards parity with the dollar so they can take their mercantalist pillaging of Greece et al (there wasnt anymore to be had for Germany anyway as unemployment rose to high 20% in those countries), and the BLS kept the bad trade in the drawer, though they did manage to get 1MM or so of the "error" back into the labor force. This meant that after what appeared to be a flash in 2nd Q 2014, the view was the market returned to the secular stagnation weak labor market meme that was essential to keeping your macro job and for the Fed to maintain power.  The Fed with the import price pressure and PPI pressure on CPI and PCE was able to keep the disinflation, low inflation thesis alive.  This in turn kept Congress at bay and allowed the Fed to keep their extraordinary powers that were not even seen by most as they are now expressed in "macro-prudential" policy.  So Yellen was able to deflect Congressional challenges for the Fed to maintain their massive new found power, which are most dangerously poised in  FRAT, HR 5018, which is to force the Fed to return to their own defined "Taylor Rule.  Later, in this year, John Taylor noted that the bill is always in the forefront of Yellen's mind when dealing with Congress.

So all through 2014, but for the "hiccup in 2nd Q"  the weird political mixture that requires a bearish view on the USA econ, especially labor, was able to be maintained.

Then into 2015, a repeat of the 1st Q weather occurred, this time with the GDP of Boston being wiped out of all data for months, allowed this bearish momentum to continue.

Until now, now the obviousness of the claims data is showing how ludicrous the bear US econ story is, not just today - but if you had paid attention to the evolving claims data has been the case since 2012, as described above.  This has not been the only data showing the extremely strong US econ since 2012.  Auto sales, consumer credit, retail sales, tax receipts and now housing were also going at full throttle.

But the clearest depiction is  from claims data.  I have gone on quite a bit on the utility of claims data, just look at prior posts on this blog from 2012 onward.  The latest post was last week. This is perhaps the best time in the year where claims data has most utility as it is the 2 weeks where autos and other manufacturers close down operations, lay off workers and do refits.  This is the part of the US economy which has the most "Keynesian Multiple".   I use only non seasonal data, as the worst of the crisis hit took place in Jan and July 2009 and Jan 2010.  This was registered as mostly large "seasonals" which either was a deliberate attempt to keep claims data aligned with the capped at 10% UER.  So the seasonal data, if you are seeking trends, is just about useless.

The more important data is in the continuing claims, but it is lagged one week behind initial claims so this AM it was for Week 28, while initial claims is at the end of the refit week Week 29.  What initial claims shows it that there was almost no auto refit shutdowns this year, and what bears watching is if continuing claims close in on 2.1 MM and drop insured UER to 1.5%.  But as you can see, similar auto strength is shown in 2012 to 2014 shut downs as well.  The dichotomy between claims data and the monthly survey based employment is so egregious that this will force the Fed to give up on looking to employment as a factor to keep ZIRP.  ZIRP should have ended when I think Bernanke wanted to in 2013, certainly it should have ended by 2014.  Claims data is crystal on that.  The size of how high Fed Funds will go in the first quarter after the end of ZIRP is indicative of how far out of whack monthly survey data is from claims data.  When monthly data re-calibrates to claims, the UER will be in the low 4% area.  The Fed Funds then will certainly "pop" well over 1% very quickly, if not over 2%, once this correction is applied.  That is why claims data is not only of great utility, but essential at this point.

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