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Takeaway: Challenger data showed a surge in July layoffs driven by military restructuring. Meanwhile, Energy appear poised for another round of pain.

This morning's labor data doubleheader (July Challenger & Weekly Claims) featured weakness stemming from both the Army and the Energy industry. As the chart below (Hat tip to Christian Drake of our Macro Team) shows, large troop reductions caused a ~50-60k surge in announced layoffs in July. Meanwhile, Energy sector cuts rose to 9k from 0k in June. While we expect the troop count reduction was one-time in nature, our expectations on the energy front are the opposite. In speaking with our Energy Sector Head, Kevin Kaiser, many energy companies are hedged through year-end 2015, implying that later this year/early next year (assuming no bounce in energy) we'll see a second wave of job cuts from Energy.

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - July Challenger

On the claims side, rolling SA claims bounced nominally W/W (+3k to 270k) but remain at/near frictional lows. Recall that a few weeks ago, claims put in a 42-year low. 

The Data

Prior to revision, initial jobless claims rose 3k to 270k from 267k WoW, as the prior week's number was unchanged. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.5k WoW to 268.25k.

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.8%

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JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims3

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims4

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims5

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims6

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims7

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims8

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims9

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims10

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims11

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims19

Yield Spreads

The 2-10 spread fell -5 basis points WoW to 154 bps. 3Q15TD, the 2-10 spread is averaging 164 bps, which is higher by 6 bps relative to 2Q15.

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims15

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims16

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT