Jobless Claims Come in More Than 20K Above Consensus While the Yield Curve is Quickly Compressing
Initial claims rose by 2k last week to 484k (rising 5k net of the revision). Rolling claims came in at 473.5k, a rise of 14.25k over the previous week. This is the largest jump in the rolling claims series in all of 2010, though a look at the reported claims chart shows that the average just rolled off of the aberrantly low data point from July 10th. Both reported and rolling claims are now consistent with the highs seen YTD. While we are beginning to feel like a broken record on this point, the fact remains that we need to see initial claims in the 375-400k range before unemployment meaningfully improves, and for now we are moving in the wrong direction.
To reiterate, our firm is of the strong view that US economic growth is going to slow markedly in the back half of this year and into 2011. We think this will keep a lid on new hiring activity and will keep cost rationalization paramount in the minds of C-suite executives. All of this raises the risks that a prospective slowdown in GDP will precipitate an incremental slowdown in hiring/pickup in firings, which will, in turn, further pressure growth. We continue to look to claims as the best indicator for the job market, as they are real time and inflections in the series have signaled important turning points in the market in the past.
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.
As a reminder, May was the peak month of Census hiring, and it should now be a headwind through September as the Census continues to wind down.
Joshua Steiner, CFA