Things Continue to Get Worse
For the last few months we've been growing incrementally more bearish for two reasons. First, we've become worried about the rising risk of a double dip in the housing market; our Financials vertical will be hosting a conference call on next week. Second, we've become cognizant of the lack of improvement in the employment picture. Since the start of this year, almost six months now, the number of people filing new unemployment insurance claims hasn't fallen one iota. Compare that with the almost straight line of improvement we saw from April 2009 through year-end 2009, where claims were falling at a rate of 23k/month. The reported number this week rose 12k to 472k, but that's after revising the prior week up by 4k so the real increase was 16k. Either way, the bottom line is that claims remain in the ~450-460k range. Rolling claims were actually flat at 463.5k vs 464k the prior week. As a reminder, we need to see initial claims fall to a sustained level of 375-400k in order for unemployment to fall meaningfully and, by extension, lenders' net charge-offs to return to normalized levels. We remain well above that level, but more importantly we're showing zero signs of progress moving to that level.
Below we chart the raw claims data.
As a reminder, May was the peak month of Census hiring, and it should now be a headwind to jobs from here as the Census winds down.
Below, we've added a U.S. equities correlations table which regresses the S&P 500 and the nine S&P sectors against weekly jobless claims, the U.S. Dollar Index, and 10-Year U.S. Treasury yields. The highest inverse correlations to weekly jobless claims on a one-year basis are (in order): Consumer Staples (XLP), Consumer Discretionary (XLY), and Technology (XLK). Utilities (XLU) has the lowest inverse correlation of all the sectors during the same duration.
Joshua Steiner, CFA