Initial Claims | 99 Problems

Takeaway: Weakening labor data coupled with compressing yield spreads is a poison pill for lenders.

Initial Claims | 99 Problems - Claims1 normal  2


Below is the breakdown of this morning's labor data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 


99 Problems

Buried like an Easter egg at the end of each of our weekly claims notes are a few charts showing the 2-10 yield spread quarterly back to 2008. For anyone not paying attention, the spread has been compressing steadily since its 4Q13 peak of 2.41%. As of today, the spread stands at 99 basis points (the 1Q16TD average is 113 bps).


This is a problem for banks. First, this is far and away the tightest spread environment seen in the post-crisis period so it simply hurts in absolute terms. Second, in RoC terms, if we hold the current 99 bps flat through quarter-end, the 1Q16 average spread will be down ~28 bps vs the 4Q15 average, which will be the second fastest rate of compression since 2011. Banks obviously feel the pain, even if it flows through on a lag. The point is that with global macro pressures growing, expect spreads and the read through to US and Global banking businesses to continue compressing/darkening.


Initial Claims | 99 Problems - Claims15 normal  1


Initial Claims | 99 Problems - Claims16


The Labor Market

The Labor Data is again less good this week. Seasonally adjusted claims rose 10k week over week to 272k, while claims continue to grow year-over-year in energy states, as the following three charts show.


Initial Claims | 99 Problems - Claims12 normal  2


Initial Claims | 99 Problems - Claims13 normal  2


Initial Claims | 99 Problems - Claims14 normal  2


The Numbers

Initial jobless claims rose 10k to 272k from 262k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -1.25k WoW to 272k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -6.7% lower YoY, which is a sequential improvement versus the previous week's YoY change of -2.8%.


Initial Claims | 99 Problems - Claims2 normal  3


Initial Claims | 99 Problems - Claims3 normal  3


Initial Claims | 99 Problems - Claims4 normal  3


Initial Claims | 99 Problems - Claims5 normal  3


Initial Claims | 99 Problems - Claims6 normal  3


Initial Claims | 99 Problems - Claims7 normal  3



Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT