Perhaps the king of timely government data, Initial Claims came in at 283K today, an increase of 17K over the incredibly low 266K of the prior week.
Overall, the 283K figure makes it 6 consecutive weeks of Initial Claims below the psychologically important 300K level.
How long can claims stay where they are?
Here’s a look.
The next two graphics address the question from an historical perspective.
The first is a cycle graph of the Initial Claims figures. Each line represents a “cycle,” which is an instance when Initial Claims dropped below 300K. The label on each graph is the week in which the cycle started. The horizontal axis is how long the cycle stayed below the 300K threshold. The vertical axis is the percentage change in Initial Claims after initially dropping below the 300K mark.
The second graphic presents the same information as the first graphic, just in table form. Each row represents the week in which a below-300K cycle began. Each column represents how long the given cycle lasted.
As is readily apparent, most cycles lasted only 1 week below 300K.
As an example, the light green 9/13/2014 line represents the current cycle. Initial Claims are about 1% above where they were when claims first dropped below the 300K threshold. The current cycle is 6 week long.
Interestingly given the often-volatile nature of Initial Claims, the current cycle has only been bested in terms of length on four other occasion.
The only four longer cycles are August 1999 (lasted 7 weeks), October 1999 (lasted 17 weeks), February 2000 (lasted 21 weeks), and January 2006 (lasted 7 weeks).
If the current cycle can stay below the 300K level next week, it would make September 2014 as the third longest since the 1990.
Do the Initial Claims numbers mean the economy is peaking?
On an initial glance, one could certainly come to that conclusion when comparing the length of the current broad recovery (over 5 years) compared to past recoveries (the average is around 5 ½ years).
There are, of course, broad macroeconomic trends that speak against an economic peak right now. Here are two.
First, the yield curve is still far from inverted, meaning if the economy is peaking, it would be one of the few times across the globe when economic activity peaked without an inverted yield curve.
Second, there’s no clear indication of any asset “bubbles” across the globe (presuming, of course, that asset bubbles actually exist and are apparent before implosion).
On the flip side, there broad macroeconomic conditions that speak to a broader peak. Here are two of these trends.
First, geopolitical tensions seem to be high. With such high tensions, investment decisions are one bad experience away from pulling out. A drop in investment would certainly cause a recession in the U.S. and across the globe.
Second, economies in Europe and other areas are either in a recession, or very weak. Weak economies don’t make for a big “pop” in the strength of the economic recovery, but they still nonetheless can lead to contraction.
Overall, Initial Claims made it to the six-week mark today. That’s six weeks below 300K. If it makes it to 7, that would make the current cycle tied for the third longest since 1990. The only longer sub-300K cycles were in the late 1999s and early 2000s, before the collapse in technology investments.