Initial claims fell 11k last week to 445k (falling 8k before the revision of last week’s data). Rolling claims came in at 455.75k, a decline of 2k over the previous week. While the rolling claims number was incrementally bullish, 455k rolling is still within the year-to-date range of 450-470k.
One caveat to the bullishness of today’s print is the frequency of adverse (upward) revisions to claims the following week. Financial blog Zerohedge.com points out that of the last 24 weekly initial claims announcements, 23 have been revised higher. If we assume that an upward revision is as likely as a downward revision, the odds of this happening by chance are approximately one in 699,000 (x = 24 / 2^24). On a year-to-date basis, the picture isn’t quite so skewed, but the cumulative revisions (sum of each week’s revision) is nevertheless greater than 80,000. For reference, and for those interested in our probability methodology, we determined the probability by calculating the total number of possible outcomes, given that each week’s revision was equally likely to be upwards or downwards and was independent, which is 2^24. Of those, 24 outcomes include 23 upwards revisions and one downward revision ("24 choose 23" or 24 choose 1 for combinatorics geeks). 24/2^24 is 1.43x10^-6, or 1 in 699,000.)
To reiterate, our firm's expectations for an ongoing economic slowdown relative to the first half of the year and into 2011 will keep a lid on new hiring activity as management teams focus on cost control. 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.
On a related note, we are publishing below a post from our Macro team on the Food Stamp program participation. To quote from that post: "Whether the NBER says so or not, the recession persists for many Americans. A record 41.8 million participants received food stamps in July as part of the Supplemental Nutrition Assistance Program, according to government data. Furthermore, the White House estimates that an average of 43.3 million people will get food stamps each month in the twelve months that began October 1st, 2010. The rising costs of food and energy (dare I say it, “inflation”), and the lack of job creation, continues to hurt the consumer – especially those at the low end of the spectrum."
The following chart shows 2-10 spread by quarter while the chart below that shows the sequential change. The 2-10 spread (a proxy for NIM) has been under significant pressure for the last few quarters and that pressure is showing no signs of abating. Yesterday’s closing value of 201 bps is down from 207 bps last week.
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA