In a widely followed weekly ritual, the Department of Labor announces the number of new claims filed for unemployment last week and the media expresses surprise at the number. Reporters generally quote economists that missed the mark as saying the economy is weaker or stronger than they expected.
The truth is that the headline number in this report tells us very little about the economy. In this week’s episode, Bloomberg noted that the number of claims fell 12,000 compared to last week.
Of course, this is after last week’s figure was revised upward by 6,000 and next week we will see a revision to this week’s number. Without the revision, the number of new claims only fell 6,000 this week.
To gain some insight into his report, we can use a statistical technique known as “normalization.” That converts the raw data to a percentage and makes it possible to identify objectively whether the data is good or bad.
This week the normalized raw claims turned bearish, as stock market investors would say. Normalized new claims rose above 50 (to 51.6 percent) meaning that this figure is worse than over half of the other weekly reports seen in the last six months.
This is the fifth consecutive week that normalized claims have increased. From this perspective, unemployment has been increasing since March of this year.
If you are considering how the economy can impact the election, this is an important piece of data. Voters ignore data releases and vote based on what they are really seeing.
With more people seeking unemployment each week on a relative basis, consumer sentiment will be negative and President Barack Obama will be eligible for membership in the ex-presidents Club early next year.
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