Initial Jobless Claims
On Thursday, March 14, the weekly Initial Jobless Claims figures (Figures 1.1 & Fig 1.2) were reported as follows:
• For the week ending March 9, jobless claims fell 10,000 to 332,000, better than the estimate for a rise to 350,000
• The prior week was revised higher from 340,000 to 342,000
• The four-week moving average (Figure 1.3) fell to 346,750, its best level since March 2008
• Continuing claims fell by 89,000 to 3.02 million
The improvement in this week’s initial jobless claims continues a series of better than expected economic data this month. In fact, several investment banks are raising GDP forecasts for Q1 2013. It appears the negative effect from the payroll tax cut expiration is being offset by the wealth effect of rising stock and housing prices. The question becomes, is the growth improvement sustainable over the coming quarters and does it precipitate a change in U.S. monetary policy?
• I expect the FOMC to acknowledge the better than expected economic data; however, it will continue its current easy monetary measures.
• I expect that further evidence is needed to suggest the growth pickup is sustainable. Keep in mind, much of the improvement in recent economic data is attributable to an inventory rebound post “fiscal cliff.” Additionally the U.S. 10-year Treasury (Figure 1.4) appears “suspicious” of the sustainability of the recent data as its yield still trades well below last year’s 2.3954% high print.
• The relationship between a declining labor force participation rate and unemployment rate must be considered. In fact continued strength in economic numbers may actually motivate those frustrated, unemployed citizens back into the job-seeking force. This would stabilize the labor force participation rate decline and make further declines in the unemployment rate more challenging.
The S&P 500® Index (SPX) (Figure 1.5) continues to advance toward its October 11, 2007 all-time high of 1576.09. Investors should continue to use 1530 as a near-term point of reference for the current bullish momentum. A close below 1530 suggests a near-term high is in place. Until then, the favorable environment for equities remains solid.
Figure 1.1 Initial Jobless Claims, April 2007 to Present
Figure 1.2 Initial Jobless Claims, May 2010 to Present
Figure 1.3 Initial Jobless Claims 4-Week Moving Average, 2008 to Present
Figure 1.4 U.S. 10-Year Treasury, March 2012 to Present
Figure 1.5 SPX, July 2012 to Present (1530 support annotated)