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Improvement in Single Family Housing Starts Leads Improvement in Unemployment

The folks at Calculated Risk (calculatedriskblog.com) showed an interesting chart yesterday of Single Family Starts versus unemployment.  We’ve recreated this chart below.  As you can see, an improvement in single family starts typically leads an improvement in unemployment by 12-18 months.  (The 2001 recession was an exception.) Single family starts have not been improving in recent months; rather, following the expiration of the tax credit, they’ve trended sharply downward.  This suggests that we are not in for a swift improvement in unemployment from here – in fact, the downward move suggests that unemployment could increase on a reported basis (though clearly the labor force participation rate is affecting the unemployment print, as we demonstrated two weeks ago). 

INITIAL CLAIMS RISE WHILE HOUSING STARTS FORETELL NO IMPROVEMENT IN UNEMPLOYMENT - 2

Initial Claims Climb 

Initial claims rose 12k last week to 465k (rising 15k before the revision).  Rolling claims came in at 462.25k, a decline of 3.25k over the previous week. Reported claims climbed back toward the middle of the range of 450-470k that the series has occupied for all of 2010. While the rolling claims number was incrementally bullish, we are still looking for initial claims in the 375-400k range before unemployment meaningfully improves.

 

INITIAL CLAIMS RISE WHILE HOUSING STARTS FORETELL NO IMPROVEMENT IN UNEMPLOYMENT - 3

 

INITIAL CLAIMS RISE WHILE HOUSING STARTS FORETELL NO IMPROVEMENT IN UNEMPLOYMENT - 4

In the table 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.

INITIAL CLAIMS RISE WHILE HOUSING STARTS FORETELL NO IMPROVEMENT IN UNEMPLOYMENT - 1

Census headwinds should abate at the end of September, as this is the last month in which Census has historically been a drag. 

INITIAL CLAIMS RISE WHILE HOUSING STARTS FORETELL NO IMPROVEMENT IN UNEMPLOYMENT - 5

 

Joshua Steiner, CFA

Allison Kaptur