Download Why US first time unemployment claims

This is Stratfor’s “how is the United States doing” datasheet. This is our single most
important sheet for determining how strong (or not) the global economy is at any
particular time. We focus on the United States as it comprises roughly one-third of the
global economy, it is the single largest importer of most of the world’s goods, it has the
largest concentration of available capital and wealth in the world, and its consumer
market is larger than the rest of the world’s combined.
Most readers will note GDP statistics are present in the accompanying chart. The primary
reason for this is that GDP data is not even remotely timely. Most countries only release
GDP data quarterly, with initial GDP estimates only being published at least one month
after a quarter has ended. We at Stratfor do not have the luxury of being able to wait four
months to find out how the economy is doing right now. There is also an issue of
revisions. Final estimates are not normally available until a full quarter after the reporting
period ends. We simply cannot wait until December to find out how well the economy
really did in July, potentially abrogating what we thought was fact in late October.
So Stratfor uses a small constellation of different statistics to provide our wet-finger-inthe-wind estimate of the strength of the American -- and by extension, global -- economy.
The first statistic we need has to measure American demand. The United States economy
is over 70 percent driven by private consumption, the highest rate of all of the world’s
major economies. Japan’s and France’s figure is approximately 50 percent, Germany’s
approximately 40 percent, and China’s a mere 15 percent.*** As such it is of paramount
concern to Stratfor what the American consumer actually does. For this we do not look to
consumer confidence figures which poll perceptions, but instead at U.S. retail sales
which are hard and fast numbers about American consumer actions.
Second Stratfor needs a figure that links consumption to business activity. This one really
only has one candidate: wholesale inventories. Inventories can only shrink so far before
there simply are not any goods left on the shelf. Low inventory figures for several months
always lead to new orders for goods and with it more robust employment. Sustained high
inventory figures, in contrast, signal a build up of goods that can retard economic
recoveries. The balance between retail sales (demand) and inventories (supply) is the
most importance factor in determining the current state of the American economy and is
extremely useful for discovering inflection points between recession and recovery.
Third we need a figure that somehow evaluates the availability of investor capital. Unlike
most other stock indexes the Standard&Poors500 Index covers all sectors (unlike
NASDAQ which limits itself to technology firms) and comprises are large sampling
(unlike the Dow Jones Industrial Average which currently only holds 30***). While on
any chosen day the S&P500 may gyrate like a lambada dancer, over the weeks and
months it does a remarkably constant job of showing precisely where investors are
putting their money. And since most economic activity on the business side of things
begin with investment, we see the S&P500 as the single most reliable -- and available -forward-looking indicator out there.
The fourth statistic has to measure employment as without a robust employment situation
it is difficult to maintain consumer spending. This figure is tricky, and not simply because
most employment-related statistics are extremely politically sensitive. Employment
patterns at their most radical take months to form discernable patterns, and most
employment-related statistics are simply not very useful in either granting understanding
or making forecasts. Because there is a *** week delay between job loss and the end of
unemployment benefits, the headline unemployment rate is always ridiculously out of
date. Job creation data is similarly untrustworthy (and is often the subject of radical
adjustments in later months) because much of the modern services-based economy
simply does not report in a way that the federal government can absorb. First time
unemployment claims -- all of which are counted at the state, not national, level -- show
one precisely how many people lost their jobs in the previous week. Low figures mean
that the job cutting is over and the path is set for higher employment, more consumer
spending, and ultimately economic growth. Higher figures mean the opposite. Our rule of
thumb is that 400,000 first time claims is the equilibrium point.
Finally, for overall growth we have to engage in some out of the box thinking. Ultimately
most statistics out there are estimates (educated guesses if one is feeling less kind).
Recognizing this uncertainty becomes critical when evaluating a dynamic economy like
the United States where industries are constantly being created and destroyed. It takes
years for government statisticians to develop models to reasonably gauge economic
activity, which results in the overweighting of declining sectors like heavy manufacturing
while underweighting new sectors like information technology. So while we do still
evaluate the headline GDP data (click here to see why), we do not do so to actually
gauge U.S. growth. For that we instead look to U.S. tax receipts. No one pays taxes if
they don’t have to, so this statistic is as hard-and-fast of a number that the government is
capable of producing as to the health of the American economy. The figure also indicates
to us that the government’s processes for estimating GDP underestimate American
growth: throughout the 1990s and 2000s U.S. tax receipts regularly outclassed GDP
growth figures, often by more than 2:1, suggesting that American economic growth was
much faster than the annual average of 2.6 percent that GDP figures report.