Initial claims fell by 11k last week (7k net of the revision). This comes on the heels of the prior week’s increase of 37k. At 457k, the number reported today is right in line with the 450-470k range the series has occupied for all of 2010. On a rolling basis, the improvement was 4.5k bringing the rolling total to 452k. 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 = 0.67) 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 = 0.15) 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