Still Good, but Less Good
The rate of improvement in the labor market slowed slightly in the latest week as initial jobless claims (NSA, 1-wk) were lower by 7.7% y/y vs an 11% improvement in the prior week. On an NSA rolling basis (4-wk), the rate of improvement slowed to 8.6% from 10.3%. Recall that claims tend to bottom out around 300k (SA), which is roughly where they are now (302k). As such, we expect to see the rate of y/y improvement converge toward zero.
The slightly weaker than expected ADP number this morning (204k vs 218k last month) coupled with August SA rolling claims being ~8k higher than July suggests there's a good chance that tomorrow's labor market report for August comes in light, especially considering expectations are for a sequential acceleration to 230k from 209k.
Initial jobless claims rose 4k to 302k from 298k WoW. There was no revision to the prior week number. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3k WoW to 302.75k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.6% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -10.3%
The 2-10 spread fell -3 basis points WoW to 188 bps. 3Q14TD, the 2-10 spread is averaging 199 bps, which is lower by -21 bps relative to 2Q14.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT