Declining Unemployment Continues To Support Rising Stock Market

The good news is not only that new unemployment claims are declining, but that economists are overstating the actual amount by over 20%. Why? Misapplied seasonal adjustment (i.e., inflating coronavirus-caused unemployment by adjustments meant for normal low unemployment summer season).

Here are the actual initial unemployment claims numbers:

Week ended July 18 –

  1.38 M (media reported 1.42 M – seasonal adjustment of +3.3%)

Week ended July 25 –

  1.21 M (media reported 1.44 M – seasonal adjustment of +18.9%)

Week ended August 1 (reported August 6) –

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  0.98 M (media reported 1.19 M – seasonal adjustment of +20.5%)

Below are graphs showing the entire coronavirus period developments:

The seasonal adjustment factors being applied in 2020 are mistakenly based on normally much lower unemployment levels

The cumulative seasonal adjustments since the coronavirus-caused unemployment started in mid-March now exceed 4 M non-existent claimants

The cumulative initial claims overstate actual continuing unemployment claims as the unemployed become employed again

The comparison shows the huge difference now between the cumulative initial claims and the current continuing claimants

The best presentation for understanding the positive dynamics at work. The green bars show the declining continuing claims, meaning the number of workers no longer unemployed are growing, offsetting the new claims being filed plus the decline in the continuing claims. Those that are no longer unemployed are now more than twice the number still unemployed.

Last is the addition of the preliminary unemployment number from the Bureau of Labor Statistics for mid-month July (reported August 7)

The bottom line

Yes, unemployment is still well above normal, but the picture continues to improve. That improvement is part of what is behind the stock market’s rise. An additional factor is the widely reported seasonally adjusted unemployment levels. The media’s large overstatement of the actual levels has led to negative headlines when the news has been positive.

Thus, investing in stocks now remains a good strategy.

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