Thursday, 12 July 2012

US ECONOMY (July 12th 2012): Today's Weekly Jobless Claims Preview

Today sees the release of the US Weekly Jobless Claims. After bitterly disappointing Non-Farm Payrolls last week, and the first sub-50 reading for ISM Manufacturing, the spotlight is firmly fixed on the US economy -- and Weekly Claims has been a very useful indicator so far this year.

Interestingly, despite the repeated disappointments in the Payrolls data, Jobless Claims have improved a little in the last two weeks -- although the readings are often prone to heavy revisions, which we'll be looking out for today.

To avoid re-typing how we use Weekly Claims in our MEDIUM TERM and LONG TERM categories of analysis:

In previous articles, we've written on how Weekly Claims are often an interesting indicator for the trend in economic conditions - for the LONG TERM by pulling up a yearly 2000-2012 chart, and even on a month-to-month basis to spot cycles of economic strength or weakness (such as March-present). The chart below (screenshot from ForexFactory) shows this well:

We generally identify MEDIUM TERM trends on a chart such as 2011-present, which shows Weekly Claims troughing between February and March, before increasing into the summer.

Being employment data, the trends are far from smooth, but the advantage is the regularity of the data - making longer term trends easier to identify in real-time. The proof is in the historical usefulness of the data in providing leading indicators for equity market returns. By troughing in February-March and trending higher, it became one of the most persuasive arguments in reducing our bullishness from the previous October-March cycle, and eventually initating a new MEDIUM TERM bearish cycle.

Therefore, even though one week of data isn't too useful to us, it's only natural that we keep a close eye on the indicator - and the revisions in the data from previous weeks.


We are first drawn to the last two readings which were improvements on the week of June 21st (revised up to 392k). This is the main bullish argument that the MEDIUM TERM trend might reverse, backed up by last week's particularly strong 374k headline reading. To be back on track, we really want to see readings back in the 355k region before too long.

From the MEDIUM TERM perspective, bulls should be happy with:
  • Any reading below 374k, and preferably lower than 370k, to mark some kind proof that conditions aren't rapidly deteriorating.
  • As small a revision to last week's number as possible. A revision back up to 385k+ for last week would leave little room for doubt that this indicator is still bearish on the MEDIUM TERM timeframe.

Bears meanwhile will be happy to see claims from this week, or last week, back in the 380k+ region.

In the longer term picture, as we can see, the trend has been firmly improving since 2009. As you'd expect, the path has been far from smooth - the 2010 and 2011 seasonal slowdowns are reflected clearly in the data. However, unless we start regularly seeing readings in the 420k+ region, and rapidly deteriorate from there, this indicator still lends itself to the overall LONG TERM 2009-present bull cycle - even if that cycle is currently in doubt.

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