Jobless Claims Lower Our Expectations For Upcoming Jobs Report To 'Inline-ish'

| About: SPDR S&P (SPY)

Summary

Jobless claims jumped today showing signs of economic weakness.

Despite that we look at the four week average to try to predict tomorrow's all-important non-farm payrolls.

We'd expect tomorrow's report to be about inline with expectations. Before today's jobless claims report it looked like tomorrow's number had the chance to surprise.

An inline jobs number is still likely supportive to markets.

Jobless claims reported weaker economic numbers today after showing record strength two weeks ago. Before today, based on jobless claims we expected an upside surprise tomorrow which could boost markets. Now jobless claims' economic slowdown has us guess tomorrow's number will be more "inline-ish." That can still be supportive for markets.

Jobless Claims Showed Economic Weakness Today

Source: Trading Economics

Today's report is shown above reporting 268,000 jobless claims last week. That is a jump over the last few weeks which is a sign of economic weakness. Two weeks ago, however, it reported a 40-year record of strength.

We Now Expect Inline-ish NFP Tomorrow

The Fed and market's most important jobs number is tomorrow in non-farm payrolls ("NFP"). Markets move on this number and is the Fed and the market's underlying sign of economic health.

Jobless claims reports weekly. When we combine that weekly average we can estimate where NFP will be for the month. That's what matters.

Here's how we do that.

Jobless Claims 4 wk avg Chg From 1 Mo Ago NFP NFP Chg
5/7/2016 294,000 268,250 24000
5/14/2016 278,000 275,750 24000
5/21/2016 268,000 278,500 24000
5/28/2016 268,000 277,000 3.9% 24000 -83.3%
IJC Predicted Weak NFP
6/4/2016 264,000 269,500 271000
6/11/2016 277,000 269,250 271000
6/23/2016 258,000 266,750 271000
6/30/2016 270,000 267,250 -3.5% 271000 1029.2%
IJC Predicted Strong NFP
7/2/2016 254,000 264,750 271000
7/9/2016 254,000 259,000 252000
7/16/2016 252,000 257,500 252000
7/23/2016 266,000 256,500 252000
7/30/2016 267,000 259,750 -1.9% 252000 -7.0%
IJC Predicted Strong NFP
8/6/2016 266,000 262,750 176000
8/13/2016 262,000 265,250 176000
8/20/2016 261,000 264,000 176000
8/27/2016 263,000 263,000 1.3% 176000 -30.2%
IJC Predicted Weaker NFP
9/3/2016 259,000 261,250 191000
9/10/2016 260,000 260,750 191000
9/17/2016 251,000 258,250 191000
9/24/2016 254,000 256,000 191000
10/1/2016 246,000 252,750 -2.7% 191000 8.5%
Predicted Strong NFP
10/8/2016 247,000 249,500 161000
10/15/2016 261,000 252,000 161000
10/22/2016 259,000 253,250 161000
10/29/2016 266,000 258,250 2.2% 161000 -15.7%
Predicted Weaker NFP
11/5/2016 254,000 251,000
11/12/2016 233,000 253,000
11/19/2016 251,000 251,000
11/26/2016 268,000 251,500 -2.6% 180000 Our Estimate

Any time you had weak jobless claims it was a sign of economic strength. Less people filed that they were unemployed. You can see in the table above that when jobless claims were weak NFP was strong and vice-versa.

This time jobless claims are down 2.6% on a four week average. That's roughly the absolute value change for jobless claims for each of the last two months. Using that would tell us NFP should be up from the month before anywhere from 8.5% (two months ago) to 15.7% (last month). That would mean NFP based solely on this should be 175,000-185,000. That is precisely the street average estimate of 180,000.

Upside Wildcard: ADP

Source: ADP

ADP tells a different story. ADP reported yesterday and also tracks closely with the all-important NFP numbers. ADP would say we should expect an upside surprise tomorrow with the NFP report.

Let's look at the correlation over time.

Source: ADP

You see above that over time the ADP line matches the NFP line. Whether jobless claims or ADP ultimately proves to be correct the NFP number tomorrow should be decent enough to support markets.

Who Cares About NFP?

The jobs market is the most important driver to the economy. More jobs drives more spending which drives business and cycles to drive more jobs. That's a business cycle. These data points tell us where the economy is in real time.

There appears to be still a lot of skepticism about the health of the economy. If jobs numbers prove to be steady it can debunk that skepticism and support markets.

Markets Chopping Around Waiting for NFP

The market has been chopping around maybe even waiting for NFP. That may be how important it is. If the numbers tomorrow are acceptable it should be a sigh of relief for markets.

Conclusion

We expect a decent NFP report tomorrow. There is no way to be precise on this but we expect that it should be supportive of markets. Taking in the data leading up to NFP, jobless claims and ADP, numbers should be fine. That matters because it may be the most important economic data point for markets and the Fed, period.

If you want Elazar's analysis on Seeking Alpha, scroll to the top of the article and hit "Follow." Elazar also writes real-time pieces as news is reported. If you want to be among the first updated check the box for "Real-time alerts on this author" under "Follow."

PRO TRADER: Free 2-Week Trial

  • Click here for a free trial.

  • Directional calls on stock market, stocks, gold, oil, bonds, currencies, indexes and more.

Disclaimer: All investments have many risks and can lose principal in the short and long term. This article is for information purposes only. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC and their related parties harmless. Any trading strategy can lose money and any investor should understand the risks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here