Our Financials Sector Head Josh Steiner looks at the relationship between initial unemployment claims and the unemployment rate:
The 444k initial unemployment claims figure this morning was up 11k from 433k last week (revised down 1k from 434k).
As such, the 4-week rolling average claims improved this week to 441k from 450k last week - an improvement of 9k, well ahead of the slope of 5.4k/week since March (9 months of data).
The following chart shows why this metric is important to track.Over the last 20 years, unemployment begins falling in earnest once rolling claims break into the 375-400k range. At the 9-month trajectory of -24k/month we are 1.8 months away from 400k and 2.7 months away from 375k. As such, by the March/April timeframe we should be at a level where unemployment begins to fall steadily, which will put a long-term tailwind behind consumer lenders.
For those wondering how to interpret a possible inflection in rolling claims should we see one in late January/February, we would suggest using a positive slope of 7.2k/week as an outer risk band. This is the fastest weekly rate at which rolling claims increased over a two week period since the trend of improvement began in March. Alternatively, in the absolute, one can use 475-480k as a near-term rolling upper limit based on the downward channel that's been in place since March.
Joshua Steiner, CFA