INITIAL CLAIMS - CONTEXT IS KING

Takeaway: Using claims to triangulate where we are in the cycle.

Context is King

Claims are now running at sub-300k on a rolling SA basis for the second week in a row. Based on the chart below, in the past two instances (1 & 2006-2007) the market went on to advance for 12-18 months after rolling initial claims first dropped below 300k. We're not suggesting that history will repeat exactly; rather, we're just offering this as context.

 

Initial claims are a leading indicator for the economy, whereas the unemployment rate is a lagging indicator. The market is also a leading indicator for the economy. As such, we use claims principally as a leading indicator for the economy and as a coincident indicator for the market. We think that by looking at both the aboslute level and the trend (and inflections therein) in claims in real time and evaluating it relative to past cycles we can have a decent bearing on where we are in the current cycle. 

 

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The Data

Prior to revision, initial jobless claims fell 13k to 289k from 302k WoW, as the prior week's number was revised up by 1k to 303k.

 

The headline (unrevised) number shows claims were lower by 14k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4k WoW to 293.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -12.1% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -12.6%

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Yield Spreads

The 2-10 spread rose 2 basis points WoW to 202 bps. 3Q14TD, the 2-10 spread is averaging 204 bps, which is lower by -17 bps relative to 2Q14.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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