Today's initial jobless claims came in at 342,000 on a seasonally-adjusted basis, the lowest reading since January 2008. As a result of the improving economy, the US stock market has rallied on the news. The chart below shows where we are in the context of past cycles. Currently, at 342,000, initial jobless claims are still a fair amount above their historical cycle troughs in the 300k range. This suggests the bull market still has legs from a fundamental recovery standpoint. As long as we don't undergo a sharp reversal, we're likely to continue to see an upward trend in the market.
Takeaway: Something interesting is happening in the labor market.
The last four weeks have seen a notably positive divergence from both trend and historical perspectives. The last two weeks have shown the sharpest improvements. Our preferred method for evaluating labor conditions is the year-over-year rate of change in the non-seasonally adjusted initial jobless claims. In the last three weeks, that figure has been -3.8%, -6.2% and today -8.6%. In other words, rolling NSA claims are 8.6% lower than last year.
One of our central tenets in thinking about the big picture for Financials has been this recurring dynamic in seasonal distortions, as it has correlated tightly with sector performance for the last three years. Interestingly, the strength in the underlying labor market over the last few weeks is strong enough to more than offset the seasonality distortions. This is, for now, turning the sell-in-May dynamic on its head. It doesn't hurt that the housing metrics are also strengthening, though this shouldn't be surprising as the two (labor & housing) are closely co-integrated.
How Low Can Claims Go?
Thinking longer term about the setup, rolling claims (SA) are currently at 342k with the most recent week at 324k. The first chart below shows the claims history (rolling SA) back to 1967. Every economic cycle since the late 1970s has seen claims trough at around 300k. To be precise, in prior cycles, claims bottomed at:
* 312k November, 1978
* 287k January, 1989
* 266k April, 2000
* 286k February, 2006
This works out to an average of 288k with a standard deviation of 19k (on a very small sample). In other words, we're still 54k above historical cycle troughs or roughly 2.8 standard deviations, a pretty healthy margin of error for the bull case.
Prior to revision, initial jobless claims fell 15k to 324k from 339k WoW, as the prior week's number was revised up by 3k to 342k.
The headline (unrevised) number shows claims were lower by 18k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -16.5k WoW to 342.25k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.2%
The 2-10 spread fell -4.7 basis points WoW to 143 bps. 2Q13TD, the 2-10 spread is averaging 150 bps, which is lower by -17 bps relative to 1Q13.
Joshua Steiner, CFA
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Yes, hold was a little high but Vegas beat our number and we were above the Street. As we pointed out in our positive MGM preview note on 4/18/13, Macau held low in the Q but should post around $200 million in hold adjusted EBITDA. Since they hit our actual estimate of $180 million we are sticking to our hold adjusted estimate – a definite positive for the stock. City Center also likely had high hold, but high hold seems to be more of the norm for that property.
Stock will be up obviously on the open but we think the momentum could persist through the quarter. Management should be very bullish on the LV turnaround and Q2 trends to date. They didn’t mention the hold impact in Macau in the release but they should be on the call. MGM Macau is a legitimate $200 million per quarter property. We know April finished up 13% for the market and our expectation is that growth will accelerate in May.
We also think there is incentive for MGM to do an equity deal at higher levels to de-lever. Therefore, they probably won’t hold back on this call. We remain concerned over the long-term with US gaming demographic and slot trends but MGM could go a lot higher over the near and intermediate term.
Keith McCullough (CEO):
J.C. Penney Apologizes in Ad Developed Under Former CEO (via Bloomberg)
Japan Builds Sri Lanka Ties With Aso Visit as China Clout Grows (via Bloomberg)
Yuan Jumps to 19-Year High on Biggest Fixing Boost Since October (via Bloomberg)
Todd Jordan (GLL):
Beijing apoints “tough cop” to watch Macau casinos (via Macau Daily Times)
Princess Cruises Discounts Alaska and Europe Up to 50 Percent (via Cruise Industry News)
Howard Penney (Restaurants):
Watch Your Domino's Pizza Being Made On Live Webcam (via AdAge)
Josh Steiner (Financials):
Small Banks Seek Exemption in U.S. Collection of Fee Data (via Bloomberg)
Ally Says Bondholder Group Pulls Support for ResCap Bankruptcy (via Bloomberg Businessweek)
Jay Van Sciver (Industrials):
EXPEDITORS REPORTS FIRST QUARTER 2013 EPS OF$.39 PER SHARE (via Expeditors)
Kevin Kaiser (Energy):
C&J Energy Services Announces First Quarter 2013 Results (via C&J Energy Services)
In preparation for HST's 1Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
March 19: HOST HOTELS & RESORTS, INC. ANNOUNCES PRICING OF $400 MILLION OF 3.75% SENIOR NOTES DUE 2023 BY HOST HOTELS & RESORTS, L.P.
FEBRUARY 25: HOST HOTELS & RESORTS, INC. ANNOUNCES STANDARD & POOR'S UPGRADE OF THE COMPANY'S SENIOR UNSECURED DEBT RATING TO INVESTMENT GRADE
YOUTUBE FROM 4Q CONFERENCE CALL
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