Initial claims fell 29k last week (25k net of the revision), the largest one-week improvement since February and the lowest absolute weekly number since mid-2008. Rolling claims fell almost 12k to 455k, the largest improvement since November of 2009. While the raw data has been volatile for the last five weeks (moving up or down more than 15k each week), until this week the rolling number had moved only slightly. This is undeniably a positive move. Initial claims are, however, still elevated at 455k (rolling), and we would have to see this rolling claims figure come down substantially into the 375-400k range before unemployment will meaningfully improve. We prefer a wait and see approach, but if the data continues to trend positively (better for two weeks in a row now) we will begin to change our tune as employment, along with housing, are the keystones of the economy.
Below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.Not surprisingly, Consumer Discretionary has the largest inverse correlation to Initial Claims (r-squared = 0.67) on a 1-year basis. On the flip side, it is a surprise to see that the Financials have the second lowest inverse correlation to Initial Claims (r-squared = 0.22) on a 1-year basis.
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.
Joshua Steiner, CFA