Initial Claims Show Further Improvement
The headline initial claims number fell 33k WoW to 383k (36k after a 3k upward revision to last week’s data). Rolling claims fell 14.5k to 415.5k. On a non-seasonally-adjusted basis, reported claims fell 26k WoW. Year-to-date are defying the trend we've seen in recent years. In most years, the first few weeks of February see an uptick in non-seasonally-adjusted claims. This year, that increase has not occurred, and the strength is showing through in the seasonally adjusted series.
Rolling claims (415k) are now getting close to the 375-400k range at which the unemployment rate should start to come down. This week’s print (383k), the lowest since mid-08, falls squarely into that range. If this level is held, we would expect to begin to see unemployment improve, assuming claims hold this level or improve further. 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 9.0%, it's 11.0%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11.0% actual rate as opposed to the 9.0% reported rate.
One of our astute clients pointed out the relationship between the S&P and initial claims shown below. We show the two series in the following chart, with initial claims inverted on the left axis. Certainly, today's claims print augurs well for further upside on this basis.
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