Unemployment Claims Pointing To Further Economic Expansion by Eric Bush, CFA, Gavekal Capital Blog
We have been on the hunt for economic data that indicates that the US may be on the cusp of a recession. So far in our journey, outside of the manufacturing sector which accounts for only about 12% of the US economy, the data seems to indicate that there is further expansion ahead. While it is just one data point, initial unemployment claims seems to be one of the strongest indications that a recession is not imminent. Initial claims is widely viewed as the best real-time indicator of employment in the US and this morning initial claims for the week of 10/3 improved to just 263K and the four-week moving average is just 267.5k. We are going to be keeping a very close eye on the first chart below as it seems to be an early warning indicator of recessions. In the chart, we plot unemployment claims as percent of payroll employment. Claims just broke down to another all-time low (going back to 1966) relative to employment. More importantly than the level, however, is the direction that the series is trending. As you can see in the chart, claims as a percent of payroll employment starts to rise approximately a year before recessions begin. We saw it in ’06, ’00, ’89, ’81, ’78,’73, & ’69. So far in 2015, this series continues to trend lower.