Multi-Decade Lows & Energy Re-Coupling
The chart below shows that seasonally adjusted initial claims just hit 255k, the lowest level in forty two years. The last time claims were lower was November 24, 1973, when the reading came in at 233k. While this exemplifies extreme strength in the labor market, it also represents a point of extreme resistance against claims going any lower. We continue to point out that this party has an expiration date, which we estimate to be about five quarters from now. In the last three cycles, once claims dipped below 330k they remained there for 24 months, 45 months, and 31 months, in the late 1980s, late 1990s/early 2000s, and 2006-2008 period, respectively before the economy went into recession. In the current cycle, claims have been below 330k for a little more than 16 months and counting. The average of these last three cycles is 33 months, which would translate to another ~5 quarters of track.
While we were hesitant last week, given holiday distortion, to make a definitive statement on improving energy state claims, the improvement has sustained itself through the week ending July 11. The chart below shows that since the week ending June 27, the spread between indexed energy state claims and the country as a whole has tightened from 15 to 3.
The Data
Initial jobless claims fell 26k to 255k from 281k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4k WoW to 278.5k.
The 4-week rolling average of NSA claims, another way of evaluating the data, was -7.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.1%
Yield Spreads
The 2-10 spread fell -11 basis points WoW to 161 bps. 3Q15TD, the 2-10 spread is averaging 170 bps, which is higher by 12 bps relative to 2Q15.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
