Initial Claims Fall to 368K
The headline initial claims number fell 23k to 368k (20k after the 3k downward revision to last week’s data). Rolling claims fell 13k to 388.5k. On a non-seasonally-adjusted basis, reported claims dropped 33k WoW. In most years, this week of the year sees 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.
We are now seeing claims enter the 375-400k range where unemployment can begin to come down. Claims will need to hold this level and improve further in order to see any real movement in the unemployment rate, but this is clearly positive on the margin. It is worth noting 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%, it's 11%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11% actual rate as opposed to the 9% 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.
Yield Curve Remains Wide
We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 42 bps wider than 4Q. The current level of 278 bps is slightly wider than last week (274 bps).
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA