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Takeaway: This week we're able to state definitively what's happening in the labor market, but what's less clear is why confidence is plunging.

The Jury is Back and Has Reached a Verdict (on the labor market)

Last week we lamented the inability to conclude whether a negative inflection in the labor market was occurring based on lagged CA state level data. This week can speak more definitively. The labor market remains strong. The chart below shows the Y/Y trend in NSA initial claims nationally. The red line highlights the trend rate of improvement prior to CA's IT-related fiasco. The data has now resumed that pre-CA trend rate of improvement.

We won't belabor the point other than to say that the labor market appears not to have skipped a step as we had potentially feared. One thing we will call out, however, is that consumer confidence/comfort has fallen to a new YTD low. We include a chart later in this note illustrating that. The chart shows the 4-week rolling average of the weekly Bloomberg consumer comfort survey, but the weekly data is no less reassuring. It's unusual to see a divergence between the labor market and the consumer comfort survey data. We'll take a closer look and report back with any worthwhile findings next week.

 INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 20

Nuts & Bolts 

Prior to revision, initial jobless claims fell 4k to 336k from 340k WoW, as the prior week's number was revised up by 5k to 345k.

The headline (unrevised) number shows claims were lower by 9k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -9.25k WoW to 347.25k.

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -6.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -3.4%

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 1

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 2

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 3

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 4

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 5

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 6

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 7

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 8

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 9

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 10

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 11

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 12

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 13

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 19

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 14

Yield Spreads

The 2-10 spread rose 12 basis points WoW to 235 bps. 4Q13TD, the 2-10 spread is averaging 228 bps, which is lower by 6 bps relative to 3Q13.

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 15

INITIAL CLAIMS: THE LABOR MARKET RETURNS TO STEADY IMPROVEMENT, BUT CONFIDENCE IS DROPPING - 16

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT