Jobless Claims Moving Sideways - No Improvement for Past 8 Weeks
The headline initial claims number fell 9k WoW to 403k (13k after a 4k upward revision to last week’s data). Rolling claims rose 2.25k to 399k. On a non-seasonally-adjusted basis, reported claims fell 67k WoW, a typical seasonal move.
We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down. If this level is held, we expect to see unemployment improve. We consider unemployment to be ~200 bps higher than the headline rate due to decreases in the labor force participation rate. In other words, if the labor force participation rate were at the long-term average level of the last decade, unemployment rate would be 10.8% rather than 8.8%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 10.8% actual rate.
Rolling claims have now trended sideways for the past 8 weeks.
Two relationships that we are watching closely are the tight correlation between the S&P and claims and between Fed purchases (Treasuries & MBS) and claims. With the end of QE2 looming, to the extent that this relationship is causal, it is quite concerning.
Yield Curve Remains Wide
We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 2Q is tracking 4 bps tighter than 1Q. The current level of 273 bps is flat from than last week.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA