It's Time to Start Paying Extra Close Attention To Initial Jobless Claims

If May's jobs report really a sign of recession, claims will spike.
Photographer: Paul Taggart/Bloomberg

How can we tell if May's surprisingly weak non-farm payrolls report was an anomaly or the portent of a broad-based downturn?

For Citigroup Inc. strategists led by Global Head of G10 FX Strategy Steven Englander, one indicator holds the key to settling this question: initial jobless claims.

Initial jobless claims are released every Thursday morning barring a holiday, and serve as one of most timely indicators on the state of the jobs market.

"In the approach to several recessions, initial claims spiked in the months in which non-farm payrolls (NFP) fell sharply and that spike was followed by a subsequent spike in claims (we look at four-week averages)," writes Englander. "In the approach to several recessions, initial claims spiked in the months in which NFP fell sharply and that spike was followed by a subsequent spike in claims."

So far, both on an absolute levels and as a share of the U.S. work force, initial claims have looked just fine. When they're released tomorrow, economists are looking for a reading of 270,000 — up marginally from 267,000 from the week earlier.

And the good news for the U.S. economy is that there's cause to believe initial claims will continue to plumb ultra-low levels or even sink lower from here, via analysts at Bespoke Investment Group.

CLAIMS BESPOKE
Source: Bloomberg/Bespoke Investment Group

"Oil state initial claims have stopped rising and are now declining," writes Bespoke. "While the employment situation report last Friday was weak, we continue to see signs the labor market is not as weak as the soft payrolls print might suggest; wage growth remains solid and accelerating, while there are no signs of businesses cutting payrolls."

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