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Jobless Claims

Headline after headline, the near term focus on whether the health of the economy is as strong as the recent stock market rally is largely centered around the job market. And it makes sense, how could the increased price for future growth of individual companies be justified without a healthy population of qualified prospects (consumers/businesses with sufficient incoming cash flow to purchase goods and services)? With the unemployment rate hovering over 10% it is easy to believe that things may not all be well. But before making an opinion based on the unemployment rate and its direct or indirect effects on the economy, one must consider the timely disconnect between published employment statistics and what is really going on in the day to day economy. Typically, employment related statistics are lagging economic indicators, meaning that they usually change after the economy does as a whole. So theoretically, the day to day pick up in hiring and personnel expansion can occur anywhere from 3 to 6 quarters before you see an uptick in employment related statistics. The graph below shows Weekly Initial Jobless Claims compared with the same statistic during past recessions, all with the data beginning at the first month of each recession. As you can see, the amount of individuals filing claims seems to be trending slightly lower. Given the high correlation between this recession’s weekly changes in jobless claims with those of previous recessions, it seems that a slight rise in the number of claims in the near term would not be surprising. Looking forward, to expect a downward trend in the number of claims is very realistic as it will reflect the pendulum losing momentum in its current direction before swinging back toward the other.

Source: Department of Labor

In an economic environment where the S&P 500 is up nearly 20 percent year to date, the US Dollar is near its all time lows, energy and commodity prices are on an upward trend, and the unemployment rate is near 10 percent there can be a lot of uncertainty. We believe that the lagging effect of employment statistics will continue for the next two to three quarters and that we will see the potential for an uptick sometime in 2010. With time, a lot of proactively lean companies will gain confidence & stability and begin to demand workers as they transition their focus towards growth efforts, which will in turn begin to eat in to the current over supply of workers, therefore helping reduce the supply/demand imbalance in the labor market, which will add positive attributes to labor & employment statistics. This process will be well into full effect by the time the economic data begins to reflect it.

Disclosure: No Position