The market’s generally been ignoring the economic indicators this week.  It’s no surprise given the bigger economic indicators due out next week, including the biggest of them all – the BLS’ employment situation report – to be released next Friday.

Initial Claims: Summary

Here’s a summary of today’s indicators.

  • Initial Claims were 311K, 19K better than what analysts expected and 10K better than last week.
  • Continuing Claims were 2.2823 million, about 77K better than expectations and down an incredible 53K from the prior week.
  • The labor market, as measured by the claims numbers, is certainly better.  The big swings also probably point to problems in the seasonal adjustment process; next week’s numbers are likely to be higher given the gigantic drops this week.
  • The third estimate of GDP and the GDP Deflator for the fourth quarter of 2013 were no surprise, completely in-line with what analysts expected at 2.6% and 1.6% respectively.
  • Pending Home Sales for February much weaker than analysts anticipated at -0.8% compared to -0.2% expected.  On the whole, the Pending Home Sales number is in-line with the story that the housing market is not having a great first quarter.

Difference between S&P 500 and initial claims

Of the indicators out today, the most influential and leading is the Initial Claims numbers.  Over a month’s time frame, Initial Claims almost always move inversely with the S&P 500 (INDEXSP:.INX). The following is the graphical relationship.

The graphic includes three peaks and valleys for Initial Claims and the S&P 500.

The first is in April 2000, when the differential between the average Initial Claims and the average S&P 500 value by month was 1,180.  The S&P 500 shortly deteriorated as did the Initial Claims measure.

The second is in October 2007, when the differential was 1,211.  The market went south right after the differential peaking, losing about half of its value.

The third peak/valley is March 2014.  The differential is 1,544, the highest on record (see second figure that follows), painting a cautionary tale warning.

Initial Claims

differential

Of course, the cautionary story could be wrong for a few reasons – the Federal Reserve and the U.S. labor market.  First, the Federal Reserve’s extremely relaxed stance on monetary policy provides no incentive for investors to pay attention to risk.  Second, the labor market looks as though it has experienced a permanent structural shift to a point where Initial Claims could stay in the valley region for quite some time.

Overall, the market is ignoring the Initial Claims figures in expectations for the broader signals due out next week.  Anticipatory investors may wish to note the cautionary story, or ignore it and become reactive, much akin to the Federal Reserve.

(Didn’t analysts once think the Federal Reserve was anticipatory?  Appears as though investors are following the lead of the Fed.)