Sizing up the Cycle
There's not too much incremental in this week's labor market report, so rather than make something out of nothing from the data, we'll try and offer a bit of context on where we are in the cycle. The trendline rate of improvement suggests that the year-over-year change in rolling NSA claims should converge to zero sometime in the late-April/early-May time period as the chart below shows. Historically, that "zero convergence" has marked the metaphorical late innings of the economic expansion. Consider the last two cycles. Progress converged to zero around December 2006 and April 1999. The expansion persisted for some time thereafter, and equities continued to rise, but both were indications that the cycle was nearing the end of its expansion - arguably fueled by late-stage rotation into equities by retail investment. We don't want to imply that we can pin the tail on the donkey perfectly with this data series, but it has, in the past, been a useful leading indicator and we expect it will again serve as such in this current cycle.
The 2-10 spread fell -1 basis points WoW to 237 bps. 1Q14TD, the 2-10 spread is averaging 242 bps, which is higher by 1 bps relative to 4Q13.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT