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CLAIMS DATA JUGGERNAUT & A WORD OF CAUTION

Takeaway: The good news is claims are hitting new lows. The caveat is this has been a dangerous place historically over the intermediate/long term.

Credit Quality Tailwinds

Last week we wrote that jobless claims dropped to a new low of 281k - for perspective that was lower than at any point in the peak of the economic expansion in 2005/2006. This week, claims are unch'd at 281k again. Meanwhile, our gauge of rate of change looks at the y/y change in the rolling NSA claims, which accelerated further to its fastest rate YTD at -21%. The progress in the labor market remains substantial. Credit-sensitive financials still have the wind at their back.

But ...

Just as the day is always darkest before dawn, the reverse holds true too. The sun is always brightest before night, or something like that. The chart below is really the point. At 281k rolling initial claims the economy is now in-line with the all-time lows put in during each of the last three economic cycles (2006, 2000 and 1988).  

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The Data

Prior to revision, initial jobless claims rose 4k to 287k from 283k WoW, as the prior week's number was revised up by 1k to 284k.

The headline (unrevised) number shows claims were higher by 3k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -0.25k WoW to 281k.

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -20.7% lower YoY, which is a sequential improvement versus the previous week's YoY change of -19.5%.

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Yield Spreads

The 2-10 spread fell -3 basis points WoW to 182 bps. 4Q14TD, the 2-10 spread is averaging 186 bps, which is lower by -13 bps relative to 3Q14.

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Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT