Below is a quick visual update to one of the best, low-intensity indicators vis-à-vis cycle accounting. The pretext and larger contextual backdrop for this is literally every note we’ve written since introducing our 4Q18 Macro Themes on Sept. 27th so I’ll refrain from ocean boiling.
The simple point here is that peak improvement in initial claims has been one of most consistent lead indicators of the cycle with peak improvement in rolling 3Mo. claims preceding the peak in the economic cycle by an average of 7 months over the past 7 cycles.
So long as initial claims continue to make lower lows, the separations side of net employment remains supportive of further labor market tightening and the expansionary party can persist without acute risk of large-scale dislocations (consumer credit or otherwise), particularly in a consumer-centric domestic macroeconomy.
What’s notable is that peak improvement in rolling Initial claims now appears to be rearview with the inflection coming off the cycle low registered in October. The peri-holiday period can be noisy and subject to distortions but with claims progressively increasing over the last couple months and the global and domestic economy now traversing the backside of the growth curve, a retrace back to multi-decade lows is increasingly less probable. In any case, and inclusive of this morning's first print for December, the fledgling inflection is worth a quick flagging.
Is it a harbinger of imminent recession? No, but like the implications of yield curve inversion, it does mean the cautionary drone of the late-cycle expansion clock starts to tick a little louder.
Christian B. Drake
@HedgeyeUSA
