By Rom Badilla, CFA
After remaining elevated the past two weeks due to Hurricane Isaac, the number of people filing for unemployment benefits for the first time declined. According to the U.S. Department of Labor, Initial Jobless Claims for the week ending September 22 came in at 359,000 people from an upwardly revised prior period release of 385,000. The drop surprised the markets as the consensus survey by economists was calling for 375,000 out of work individuals.
The data prior to this week’s release was distorted due to the hurricane according to the Labor Department. As mentioned last week, Initial Jobless Claims were higher by about 9,000 due to the storm.
With today’s numbers, the four-week moving average improved by declining 4,500 to 374,000. Despite the drop, the four-week average continues to remain elevated as it is near levels from a month ago.
An average is used to smooth out the week to week volatility and is a gauge of the overall health of the jobs market and the economy. A four-week moving average of greater than 400,000 is typically associated with job destruction and a rising Unemployment Rate and rising Non-Farm Payrolls. With slack in the jobs market and the potential for slower economic growth, stocks should fall while bond prices should rally (bond yields decline). Conversely, a moving average in the 300,000 to 350,000 range coincides with robust job growth and economic expansion. This should equate to higher stocks and declining bond prices (bond yields increase).
In addition to this week’s drop on first timer’s, people who have been claiming unemployment benefits continues to fall which is a positive for the labor markets. Continuing Claims for the week ending September 15 fell by 4,000 to 3,271,000 people. This latest reading marks the lowest number of people on unemployment insurance since May 2012.
This improvement in the labor markets appears to be real according to Deutsche Bank’s Chief Economist, Joseph LaVorgna. Today’s claims number reinforces the latest actions by the BLS toward previous Non-Farm Payrolls data releases. In their latest U.S. Data Flash, he wrote the following:
The claims data provide important evidence that the labor market is not losing additional traction. In fact, the BLS’s preliminary guidance regarding benchmark revisions indicated that nonfarm payrolls through March of this year will be revised higher by 386k (or roughly +32k per month). This is not surprising, because revisions tend to be positive when the economy is improving.
Today’s data release should provide some evidence that the September jobs report revealed in early October should be near its current trend and should not point to any deterioration in opportunities for job seekers. Having said this, improvements in jobs have been far and few between which justifies the Federal Reserve’s latest round of balance sheet expansion, given their mandate of maintaining an economy close to full employment. With easing policies in place and rate guidance pushed farther out, interest rates should remain low for a considerable amount of time.
According to Trade Monster’s Bond Trading Center, U.S. Treasuries are selling off slightly with interest rates rising. The yield on the current 10-Year U.S. Treasury is up 4 basis points to 1.65%.
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