From course The market jumped when unemployment numbers came in better than expected this morning. Since last Friday’s weak employment report, any new macro data has been given utmost importance as investors try to figure out whether or not we are heading for a recession.
And Unemployment figures are likely The best leading economic indicator. They have a long track record. They are published every Thursday morning. And they are an excellent indicator of whether the labor market is rapidly weakening – or not.
But…They can be volatile and sometimes give False alarm, as I learned the hard way last year. Applications rose sharply in June, stayed high through the summer, and peaked in August at over 250,000. Stocks also sold off, making it seem like the economy was faltering. Then it stopped. Applications improved from August to October, when stocks finally bottomed out and then began a rapid rally.
A similar pattern could be playing out this year, for whatever reason. Claims rose to nearly 250,000 last week, an unwelcome development that set the market up for the disappointment of Friday’s jobs report. If claims had continued to rise today, concerns about the economy – and calls for the Fed to cut rates – would surely be growing. Instead, they turned around to a relatively normal 233,000, triggering a 50-point jump in the S&P premarket and a rise in the 10-year yield back toward 4%.
Plus, as a percentage of the working population that as we discussed yesterdayhas reached a historic high – the damage total looks even better. At currently around 0.14% they are at half Economist Jim Paulsen points out that inflation rates were at the same level at the beginning of the recessions in 2007, 2001 and the early 1990s.
The point is: We need to see the number of applications rise significantly above 250,000. and stay there until the autumn months before then, it will be a useful “signal” that recession concerns should be at the forefront. And if the Fed cuts interest rates in the meantime (which disinflation gives it the scope to do), the prospects for further job creation should only improve.
See you at 1pm!
Kelly
Twitter: @KellyCNBC
Instagram: @realkellyevans
