Initial claims rose by 37k last week (39k net of the revision), the largest jump since May of 2009. This comes on the heels of the prior week’s decline of 29k, which was the largest improvement since February of this year and the lowest weekly number since mid-08. At 464k, the number reported today is right back in line with the 450-470k range the series has occupied for all of 2010. On a rolling basis, the deterioration was more modest, rising 1.25k to bring the rolling total to 456k. We note that there seems to be significant seasonal volatility at work, as similar gyrations appeared this week in 2008 and 2007 (see the second chart below). Ultimately, initial claims need to be in the 375-400k range before unemployment meaningfully improves.
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 = 0.68) 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 = 0.20) on a 1-year basis.
As a reminder, May was the peak month of Census hiring, and it will remain a headwind through the September data as the Census continues to wind down.
Joshua Steiner, CFA