The Labor Department released its weekly initial and continuing unemployment claims yesterday. Overall, the Department’s figures paint a picture of a recovered economy, with initial seasonally adjusted claims sitting at 371K and continuing claims at 3.109 million.
On the continuing claims figures, the figures look relatively good, with this week’s figures declining by 127K. Continuing unemployment insurance claims haven’t been this low since the spring 2008. In terms of the cycles associated with continuing claims, today’s figures are still about 755K above where they stood at the height of the most recent cycle low of 2.534 million.
Will continuing claims ever get back to their 2006 lows, let alone their 2000 lows? Well, in order to achieve the low levels seen in those years, the economy would need to be growing closer to 5 percent, something unlikely in the foreseeable future.
Interestingly, when looking at the continuing claims figures against a simple linear trend, continuing claims are now actually lower than what the trend would indicate, and have been there since the early months of 2012. Although not surprising to followers of the labor market cycle, it should give bull market investors some cause for concern.
On the initial claims side, the figures do not look as bright, with initial claims now at the same place they were in the second week of December 2011. When looking at the initial claims figures against a simple linear trend line, the same issue shows up as did with the continuing claims figures – claims are now floating below the trend line. Although issue arise in applying a linear trend line to high frequency data like initial claims, the fact that initial claims are floating below it should still give bull market investors another reason for caution when considering the durability of the current over four year bull market.
In all, what do today’s initial and continuing claims figures portend for the 2013 equity and labor markets?
Well, one thing is readily apparent: strong improvement in initial or continuing claims is unlikely in the coming year, at least when it comes to initial claims (the leading indicator).
With this most likely labor market scenario as the background, the question is really: how well will the equity market respond to a relatively flat to crawling labor market? The answer to this question likely comes down to whether investors are willing to look for other signs of an improving financial economy beyond the labor market side? There certainly are some, it just won’t be the labor market. In fact, the probability is more likely that initial claims will give the sign of a deteriorating economy through most of 2013.
Overall, initial and continuing claims appear to be in the area where they will either be flat or deteriorate somewhat (at least when it comes to the initial claims figures) from where they stand now. The deceleration should act as a sign of concern for bull market individuals worried about the historical behavior and relationship of initial claims with equity market performance.