The week ended September 12 was relatively short thanks to the Labor Day holiday, yet the Bureau of Labor Statistics decided to use this past week as its sample week for the September employment situation report. The Department of Labor noted that initial jobless claims continue to be at healthy levels, declining by 11,000 to a level of 264,000 and lower than the unrevised 275,000-level reported in the prior week.
This is not only one of the lowest readings in the last 40 years - although the shorter week certainly helped with that - but it is also about 13,000 claims lower than the sample week used in the August 2015 employment report. While not the lowest level on record, the chart below demonstrates that this week's reading is one of the best readings of the past year.
At the moment the 4-week moving average rests at a level of 272,500 claims which is roughly even with the level reported a month earlier. Even though the sample week is a short one, this notable downturn in claims is already giving the market optimism for the September employment report. Yet at the same time, it gets the Fed salivating over a potential interest rate hike before the end of the year.
Looking back a week earlier, data for continuing claims is also very positive. For the week ended September 5, continuing claims declined by 26,000 for a total of 2.237 million, with the 4-week moving average down by 5,000 to 2.256 million.
Additionally, for the week ended September 5 there were some notable changes on an individual state basis. In New York, layoffs in the transportation and warehousing, educational service, and accommodation and food service industries came close to reversing the decline of the previous week with a drop in initial jobless claims of about 4,012.
In the same week, the State of Washington noted an increase in layoffs in the construction, manufacturing, information, and finance and insurance sectors resulting in a 1,256-increase in initial jobless claims. Texas is also suffering with layoffs in the manufacturing, administrative and support and waste management and remediation service, educational service, health and social service, and retail trade industries. This resulted in an increase of 1,120 new jobless claims in the Lone Star State. The layoffs reported in prior reports correctly manifested in their respect Fed district surveys - the Dallas Fed survey will be released on Monday, September 28.
What does this mean for investors?
Well, judging by the reports of the past week, the overall industrial sector is headed on a long, lonely walk to the downside. Industrial sector ETFs - namely iShares U.S. Industrials ETF (BATS:IYJ) and the SPDR Industrial Select Sector ETF (NYSEARCA:XLI) - are getting a bounce today from the broader stock market, however the space should be carefully watched from a distance for the time being. The Fed clearly lacks optimism in industrials, and there are several other viable sectors that deserve a look - such as housing and consumer discretionary.
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