Initial Claims Rocket Back to 454k
The headline initial claims number rose 51k WoW to 454k (50k after a 1k downward revision to last week’s data). Rolling claims rose16k to 427k. On a non-seasonally-adjusted basis, reported claims fell 68k WoW. As the third chart below shows, the NSA series is following a typical seasonal pattern. This backup in claims is being partially attributed to weather-related backlogs. We would observe, however, that the backup is entirely consistent with this time of year over the past three years - see charts below. We would expect going forward, based again on the seasonality not canceled out by the government's seasonal adjustment factors, that claims will remain high and potentially rise higher over the next 3-4 weekly datapoints.
As an aside, we continue to expect pending home sales, to be released at 10am this morning, to be a disappointment relative to consensus. For more information on that, please see our note from yesterday morning.
We continue to remind investors that based on our analysis of past cycles, the unemployment rate won't improve until we see claims move into the 375-400k range. That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9.4%, it's 11.4%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11.4% actual rate as opposed to the 9.4% reported rate.
Yield Curve Remains Wide
We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 40 bps wider than 4Q. The current level of 279 bps is flat versus last week.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA