as part of our
Forget the line about "lies, damn lies and statistics." News
headlines take the cake for the greatest potential to mislead.
Look no further than the latest unemployment data…
Last week, the Labor Department revealed that initial jobless
claims spiked to 439,000. That's the highest number in 18 months -
and almost 80,000 more than the previous week.
What gives? Wasn't the labor market on the mend? I mean, a few
weeks ago, right before the presidential election, initial jobless
claims dipped to their lowest level in four years.
Such a sharp reversal must be the result of some kind of
right Mr. Welch
Fear not. There's no need to go there. A quick scan of the
ever-trustworthy news headlines reveals it's all a natural
"Hurricane Sandy drives up first-time jobless claims."
"Claims for jobless benefits jump as Sandy's havoc spreads to
labor market." -
The Star Ledger
"Hurricane Sandy drives up joblessness." -
Cape Cod Times
"Hurricane Sandy sends first-time unemployment benefit claims
soaring to 18-month high." -
So it's all Hurricane Sandy's fault!
Or is it?
In honor of Myth-Busting Monday, let's dig into the numbers to
figure it out.
In the process, I'll also remind you why investors should
regularly track unemployment claims data - and how to do it. (Hint:
Unlike Miss Cleo, it can actually help you predict the future.)
Don't Get Caught Up in the Blame Game
No doubt, Hurricane Sandy impacted the employment situation in
the Northeast. And it's going to continue to do so, as well.
As Citi economist, Steven Wieting, said, "The experience of
Katrina suggests higher storm-related [unemployment] filings could
persist for weeks."
But the headlines make you believe the entire increase in
initial claims last week is Hurricane Sandy's fault. And that's not
the case at all.
If we dig into the data, here's what we find…
New Jersey and Connecticut reported increases of 5,675 and 1,783
claims, respectively. And the cause was clearly stated in the press
release: "Due to Hurricane Sandy."
The highest increases, though, came in Pennsylvania (+7,766) and
Ohio (+6,450). The cause?
Not the hurricane.
In Pennsylvania, claims spiked because of "layoffs in the
construction, transportation, manufacturing and the food and
beverage manufacturing industries." In Ohio, it was due to "layoffs
in the automobile and manufacturing industries."
And here's the kicker: In total, non-hurricane-caused claims
outweighed hurricane-caused claims by a ratio of 3-to-1!
Yet the media's blaming it
on the storm. Did they even take the time to read the full press
release to uncover the real data? Obviously not.
The truth is, the cause for the huge increase is two-fold. It's
the hurricane and - to a greater extent - continued weakness in our
economy. That's potentially problematic for investors.
As I've told you before, stock prices exhibit a strong negative
correlation to the four-week average initial jobless claims figure.
As claims go down, stocks historically go up. And vice versa.
True to form, the latest spike in the four-week average to
383,750 claims coincides with the drop in the stock market.
Bottom line: We need to go to the source, instead of relying on
the mainstream press to get the truth. When it concerns initial
unemployment claims, that means visiting the
Labor Department's website
, where you can access all the current and historical data.
And the reason we should even give a hoot about initial jobless
claims (beyond the obvious that it's an indication of overall
economic health), is because the longer-term trend helps us predict
the next move for the stock market.