Initial Claims Drop, Yes, But Odds Are They'll Be Revised Higher Next Week
The headline initial claims number fell 23k last week to 452k. There was a significant revision to last week’s number, increasing it by 13k. If the revised number had been printed last week, it would have represented one of the top five largest increases in reported initial claims for the year to date. The prior week’s revision has now been upward for 25 of the last 26 weeks. If upward and downward revisions were equally likely, the odds of this occurring by chance would be 1 in 2,684,355 (or 1/(26/2^25)). Rolling claims came in at 458k, a decline of 4.25k over the previous week. All told, claims remain in the same band they’ve occupied for the year, and we are still looking for initial claims in the 375-400k range before unemployment meaningfully improves.
We don't want to go out on a limb here, but it strikes us that the market is focused mainly on whatever the current print is. Based on chronic upward revision, the illusion can, and is, being created for those who look only at the current print that the jobs environment is improving. In reality, as our charts below show, however, unemployment claims have remained flat as a pancake this entire year. There is no improvement in the data. We just want to make that crystal clear.
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.
Joshua Steiner, CFA