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Takeaway: Tomorrow's NFP print will be the main event on the labor front, but we think we already have a pretty clear picture of what's happening.

Labor is Slowing, but Only Modestly

The strength of the labor market has cooled off modestly. We key off the year-over-year rate of change in rolling NSA (non-seasonally adjusted) initial jobless claims. This week the data was better by 5.5% vs the same period last year. However, if you compare that with the preceding three weeks of data, it reflects a modest deceleration. The last four prints have been: -8.5%, -7.9%, -7.2% and -5.5%. It's important to remind investors that initial claims tend to hit a frictional resistance around 300k. As such, the closer we get to 300k the more we'd expect the rate of improvement to converge toward zero. As such, it's not surprising that the rate of improvement is slowing, but we're more interested in the short-term acceleration/deceleration relative to the trendline rate of change. On that basis, the last four weeks represent a bit more of a slowdown than what the trendline would suggest. To be clear, we're not overly concerned here, but in light of the weak ISM print and the elevated overseas concerns it's important to keep tabs on whether we're in the early days of a real slow down or just a short, counter-trend speedbump.

The Numbers

Prior to revision, initial jobless claims fell 17k to 331k from 348k WoW, as the prior week's number was revised up by 3k to 351k.

The headline (unrevised) number shows claims were lower by 20k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.75k WoW to 333.25k.

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -5.5% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.2%

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 1

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 2

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 3

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 4

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 5

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 6

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 7

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 8

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 9

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 10

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 11

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 12

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 13

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 19

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 14

Yield Spreads

The 2-10 spread rose 3 basis points WoW to 235 bps. 1Q14TD, the 2-10 spread is averaging 244 bps, which is higher by 4 bps relative to 4Q13.

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 15

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 16

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT