Seeking Alpha
Long/short equity, research analyst, portfolio strategy, newsletter provider
Profile| Send Message| ()  

By David Urani

While the market imitates Chicken Little today, I'll play a little bit of a contrarian role. As a reminder this week is jobs week, culminating in the official government numbers on Friday. We will get our first hints tomorrow with the release of the unofficial ADP numbers and the Challenger Gray layoff figures. The reason I bring this up is because I think we're shaping up for a decent result on Friday.

I like to track initial claims trends because I think they tend to be a good harbinger of economic conditions and a leading indicator. One thing we know is that over time, initial claims have tracked the unemployment rate quite well. Below I compiled all historical initial claims data dating back to 1967, mapped with unemployment.

Believe it or not, initial claims right now are below the historical average. The monthly average of claims since 1967 is 363,316 whereas February's average was 354,000. As you can see in the chart, the difference between the unemployment rate and initial claims currently is virtually unprecedented and suggests the unemployment rate has room to drop further.

Over time, changes in claims have generally preceded those of the unemployment rate. Our best comparison to now may be in 1983/84 when jobless claims plunged and the unemployment rate followed suit. If there is a difference this time around though, perhaps it is that those who currently remain on unemployment benefits are almost incentivized to remain unemployed because of the generous long-term handouts.

Despite jobless claims falling from a 377,250 average in January to 354,000 in February (the best drop in a year), the consensus estimate for Friday's jobs report is for the unemployment rate to remain flat at 8.3%.

In addition auto sales numbers came in strongly for February, and they tend to be a fairly good indicator for employment as well. Below I mapped the inverse of annually adjusted auto sales over unemployment.

Source: Hey, What About Employment?