Jobless Claims Hit 500k
Initial jobless claims rose 12k last week to 500k, the highest level since November 2009. Consensus had called for a small decline. Rolling claims rose 8k to 482.5k, also the highest level since last November. We have been looking for the range of 375-400k as the maximum level for unemployment to fall meaningfully, but with claims moving the wrong direction, the spectre of rising unemployment looms.
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