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Editor's Note: Below is an excerpt from a research note dissecting today's Jobless Claims data and written by our Financials team. To access our institutional research email sales@hedgeye.com.

Dissecting Today's Jobless Claims: How Many Points Make A Trend? - jobslatecycle

How many data points does it take to make a trend? That's a question worth asking, in light of the fact that the last three weekly initial claims prints have been sequentially higher. At the low end of the spectrum, some argue that a simple plurality (two) of datapoints constitute a trend. Most seem to think it takes three data points (i.e. 2,4,6) to conclude a trend is occurring. At the other end of the spectrum there are those who argue it takes at least four data points to have the requisite conviction needed for forecasting/extrapolating recent data into the future.

Three weeks ago, claims rose by 9k. Two weeks ago, they increased by 17k, and last week they rose by a further 20k. There are no holidays or distortions in the last few weeks of data that could account for the rise and we're not yet into the automotive furlough season. 

Dissecting Today's Jobless Claims: How Many Points Make A Trend? - jobless claims 5 12

I would suggest that the last 2-3 weeks of data are significant; the last two weeks especially, as they've shown the largest back-to-back weekly increases in initial claims YTD, and they've come consecutively (+17k, +20k). Moreover, they come directly on the heels of the weaker-than-expected April NFP report, which was measured in the week prior to the most recent 3 weeks of rising claims. In other words, taking the April NPF in conjunction with the last 3 weeks of claims data, you have ~7 weeks of weakening labor market data.

We'll see what the next few weeks bring, but I would argue that if the "trend" in initial claims continues higher over the next two weeks, the early innings of a labor recession trend are afoot.