Monday, May 30, 2011

About those Initial Jobless Claims

It might not be anything, but I'll write about this anyway. It makes some sense in my head.

A lot of PhD Economists have these models to capture seasonality in data, etc, but, considering that a lot of these models will get fundamental moves incorporated to their models as seasonality, I like to look at raw data, non-seasonally-adjusted, and compare it YoY or to the trend change compared to the year before (ie: how are we in Jan-May x 2010), etc.

Find below 3 charts of Initial Jobless Claims...

First 2 = 4wk average of IJC NSA, 52-week change (YoY). One of them since 1980, the other one since 1995.
In recessions the YoY change (52x52 period change in weekly data) increases and when the recovery sets in the chart goes down (reduction in claims x year ago).

The pattern was the same after the 82 recession (Volcker kicking some ass), 94s Tequila Crisis, 97s brief Asian Crisis, Dot-com bust 2000-2001, 2003s tiny double-dip and 2007-2009 Great Recession.
Deterioration has peaked from the dramatic mid-2009 levels, but now the YoY change seems to be close to positive levels again, meaning that there's higher risk that we will see deterioration in unemployment claims.

If you check out the 3rd chart you will notice that we're still with more claims than ALL years since 1998 with exception of 2009-2010 when the recovery was picking up.
Now also notice that the distance between 2011s path in 4wk-avg claims and 2010 has decreased from the bottom of the chart. As the YoY charts indicate, it means the recovery in jobs is actually slowing instead of accelerating as lots of people say.

Some might say that the deceleration is natural as the neutral level is somewhere around where we are, so changes in jobless claims will be less volatile to both sides... Some might say this is temporary, that it was weather impacting or that the japanese supply-chain reverbations are also temporary...

But I will step into the path of humbleness to say that I have no confidence that we are really going to see a pick up in growth, especially considering all the fiscal and monetary stimulus in place that should, as time goes by, have smaller impact on the economy.

The american economic backdrop (deleveraging) is certainly not supportive of such view if you consider the wearing-off stimulus.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

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