Jobless Claims Put FOMC Unemployment Forecast in Sight
Comment of the Day

June 08 2023

Commentary by Eoin Treacy

Jobless Claims Put FOMC Unemployment Forecast in Sight

This note from Bloomberg Economics may be of interest. 

OUR TAKE: The surge in jobless claims — to the highest level since October 2021 — is in line with our analysis of WARN notices, which suggested layoffs were set to spike. It’s increasingly feasible for the unemployment rate to reach the median FOMC participant’s 4.5% projection by year-end.

Initial jobless claims for the week ended June 3 increased 28k to 261k. The reading was above the consensus (235k) and Bloomberg Economics’ projection (240k).

The surge came from Ohio (6.3k), California (5.2k), Minnesota (2.7k) and Pennsylvania (2.0k).

Given recent fraudulent applications in Massachusetts, it’s possible that other states are experiencing similar issues. However, the four-week moving average also increased by 7.5k to 237k, well above the 218k pre-pandemic average from 2019. That suggests labor-market conditions are continuing to cool.

Continuing claims declined 37k to 1,757k for the week ended May 27, remaining above the pre-pandemic average of 1,699k. The insured unemployment rate — the number of people currently receiving unemployment insurance as a percentage of the labor force — remained at 1.2%. We expect continuing claims to move higher given the surge in initial claims and tracking of WARN notices.

Eoin Treacy's view

The pandemic introduced a massive spike into jobless data so the only way to get a viable chart is to cut it out. The most important historical fact is a move above 250,000 was a breakout in 2020 and is a base formation completion now too. Ahead of a decade of QE, a break above 400,000 was required to signal trouble. That also helps to highlight how the economy has been running with little spare labour margin for most of the last decade.

The pattern of tech stocks doing well when economic statistics surprise on the downside was in evidence again today. The Nasdaq-100 jumped by 1% and was led higher by the mega-cap stocks. The assumption traders are working under is deteriorating economic activity will bring forward the next round of rate cuts and that the largest companies will not see earnings fall during a recession. With stretched valuations, the best of all possible outcomes is required to justify that way of looking at the potential for markets.

Meanwhile gold continues to hold the lower side of the three-month range.

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