WE'RE NOW 1.8 MONTHS FROM A BIG TAILWIND FOR CONSUMER LENDERS

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).

WE'RE NOW 1.8 MONTHS FROM A BIG TAILWIND FOR CONSUMER LENDERS - js1

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.

WE'RE NOW 1.8 MONTHS FROM A BIG TAILWIND FOR CONSUMER LENDERS - js2

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

Financials