Courtesy of Lee Adler of the Wall Street Examiner

An analysis of the actual, not seasonally manipulated and massaged unemployment claims data shows some deterioration in employment, week to week. Weakening employment data has raised expectations for Fed action.

Actual initial claims rose by 9,355. In the same week last year they were down by 1,273. The average increase in new claims in the pre Labor Day week over the past 5 years was 4,293. Including just 2007-2010, the average was +3,300. Therefore this week's number is worse than last year, worse than the average of the past 5 years, and worse than the past 4 years since the depression began in terms of the increase in new claims since the previous week.

The total number of claims at 346,065 is better than last year's 381,838 and 2009's 466,277 during the same week, and slightly better than 2008's 358,730, but it remains significantly elevated versus 2007's 257,454, and 2006's 259,539.

New claims as a percentage of eligible covered workers were 0.275%. That compares with 0.301% during the same week last year and 0.350% in 2009. This year is worse than the 0.268% in 2008 and 0.195% in 2007, just before the economy collapsed.

Analysis of continuing claims is clouded by the fact that continuing claims can decline due to claimants becoming employed, or by exhausting benefits. Claims have been in a steadily declining trend, but there is no way of determining how much of the decline is due to new employment and how much is due to claimants exhausting benefits. The rate of decline in Federal extended benefit programs has been faster than in regular state programs. I suspect that this is due to greater numbers of people exhausting these benefits than the number moving from the state program to the extended benefit program.

The Fed has been floating trial balloons almost daily about different stimulative steps it could take. The claims data is just more grist for the mill. The consensus seems to be that the Fed will make like Chubby Checker and do the Twist, swapping out short duration Treasuries for longer term notes and bonds. There's also discussion of cutting the rate paid on bank reserves to zero. Additional money printing (aka QE) has been all but ruled out for the time being.

With QE ruled out, the real impact of either of the other proposed actions will be nil, but that won't stop the market from speculating about it and percolating higher heading into the announcement on September 21. Once the new program is made official, whatever it is, it could be a quintessential sell the news moment. That would not apply if the Fed actually announces another round of outright money printing a la QE2.

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