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Takeaway: A second week of accelerating improvement brings rolling non-seasonally adjusted claims back to best levels YTD.

Convergence Continues

Headline claims increased +8K week-over-week to 312K with the four-week rolling average declining another -3K sequentially to +310K. Non-seasonally adjusted claims, which we consider a more accurate representation of the underlying labor market trend, came in at -10.8% year-over-year (vs. -13.8% prior) with the four-week rolling average improving 160 basis points sequentially to -11.3% year-over-year.  

Jobless Claims: Back at Best Levels Year-To-Date - jobs1

The rate of change in year-over-year, rolling non-seasonally adjusted claims improved to its best level in seven weeks and is near its best level YTD while rolling seasonally adjusted claims hit their lowest level since June 1, 2007.  

We typically look at the slope of improvement as our indicator on the prevailing trend in the labor market.  Historically, however, the 300K level has served as the lower bound in seasonally adjusted claims during expansionary periods. At this week's reading of +310K we continue to converge toward that frictional lower bound and expect the rate of year-over-year improvement to slowly converge toward 0% as well.   

Jobless Claims: Back at Best Levels Year-To-Date - NSA Claims 060514

On balance, the domestic macro data has been better sequentially quarter-over-quarter, but outside of the discrete ramp in Auto Sales in May, there hasn’t been much evidence of material deferred demand from 1Q coming back in 2Q. 

The national and regional manufacturing surveys have been ‘good’ and the labor market data (ADP was soft but the trend in claims remains positive) has been stable-to-better. 

However, April retail sales were weak, consumer spending in April was particularly soft, the trade balance for April was worse than estimates (with March revised lower, taking 1Q GDP further negative), and the housing data remains in conspicuous deceleration.  

From a policy read-through perspective, the positive momentum in the labor market along with the broader, sequential improvement in the domestic macro data off the 1Q14 weather distortion suggests the inertia is still with continuing on the present policy course. 

The improvement in claims also bodes well for the May employment report.  While seasonally adjusted claims reported during the BLS survey period were less good than the most recent two weeks, on balance, the May claims data is supportive of a good nonfarm payroll print.  

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Editor's Note: This is an excerpt of a research note that was originally provided to subscribers on June 5, 2014 at 10:29 a.m. EST by Hedgeye macro analyst Christian Drake. Follow Christian on Twitter @HedgeyeUSA