Converging Toward Zero
After a very strong print last week, the labor data took a small step back this week with the rate of change slowing on both a 1-week and 4-week rolling basis. As we've stated often, it's important to remember that initial jobless claims reach a frictional level that they're unlikely to drop much below. This is not dissimilar from the unemployment hitting its frictional bottom at around 4%, i.e. "full employment". As such, as the level of initial claims approach that frictional bottom (~300k), one should expect the rate of change to converge toward zero. The question is, is there a conspicuous trend-line deviation in that rate of change?
With that being said, the data had recently been running at a fairly steady rate of ~10% improvement year-over-year. That is to say, claims are lower by 10% this year vs. last. This week saw claims better by around 6.5%, which is a deceleration vs the recent trend, but not out of line with the converging trend towards zero.
Bottom line: labor's still improving, but at a slowing rate.
The Data
Prior to revision, initial jobless claims rose 13k to 293k from 280k WoW, as the prior week's number was revised up by 1k to 281k.
The headline (unrevised) number shows claims were higher by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -1.25k WoW to 298.5k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -6.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.3%
Yield Spreads
The 2-10 spread rose 8 basis points WoW to 205 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
