INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE

Takeaway: Tropical Storm Issac added 9k to this morning's claims print. Our expectations for tailwinds over the next six months is unchanged.

Isaac Headwinds

Initial jobless claims rose 17k last week, or 15k after revision. The Department of Labor blamed roughly half of the increase on Hurricane Isaac, noting that "Several states have reported increases in initial claims (approximately 9,000 in total) for the week ending September 8, 2012 , as a result of Tropical Storm Issac.".  

Where do claims go from here? We know that there's an embedded tailwind in the September through April data, so we would expect to see a significant improvement over the next six months of data, though week to week changes will remain random. We profiled this historical relationship in last week's jobless claims note: "Jobless Claims: Six Months of Tailwinds on Tap".

Stripping out the seasonal adjustment nonsense, jobless claims are still improving. The YoY change in non-seasonally adjusted initial claims was -8.5% this past week, a slight improvement from the -8.1% YoY change in the prior week. 

Additionally, the S&P and the rolling claims series diverged this week. These two series are cointegrated, meaning that they can diverge in the short term but mean revert over the longer term. For reference, the current level of claims implies an S&P level of ~1345. The S&P is currently trading at 1436, or roughly 6.7% higher than the level implied by our claims-driven fair value model. 

Claims: The Data

Initial claims rose 17k to 382k last week but after incorporating the upward revision to last week's data, claims rose 15k. On a rolling basis, claims rose 3.25k WoW to 375k. The NSA series fell 12k.  

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Raw2

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Rolling

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - NSA

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Rolling NSA

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - S P

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Fed

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - YoY

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Recessions

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Rolling Claims Linear

Yield Spreads

The 2-10 spread widened 13 bps WoW as the 10 yr treasury yield rose 16 bps. QTD, the 2-10 spread is averaging 1.34%, which is down 17 basis vs 2Q12. 

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - 2 10

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - 2 10 QOQ

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations. 

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Subsector Performance

INITIAL CLAIMS: HURRICANE ISAAC PUSHES CLAIMS HIGHER, UNDERLYING TRENDS STILL POSITIVE - Companies

Joshua Steiner, CFA

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Robert Belsky

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