Initial Claims Fall 39k
The headline initial claims number fell 39k WoW to 415k (42k after a 3k upward revision to last week’s data). Rolling claims rose 1.25k to 429k. On a non-seasonally-adjusted basis, reported claims fell 23k WoW. As the third chart below shows, NSA claims have risen in this week of the year for the last three years. It's possible that this discrepancy reflects weather-related reported delays, which could reverse next week.
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.
One of our astute clients recently pointed out the relationship between the S&P and initial claims shown below, suggesting that claims is one of the strongest drivers of the market. Based on the chart below, we are hard-pressed to disagree. We show the two series in the following chart, with initial claims inverted on the left axis.
In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.
Joshua Steiner, CFA