Monday, November 9, 2009

Future Stat of the Week: Jobless Claims

Future Stat of the Week is a new focus post by Stone Fox Capital. Too often the market focuses on the current economic stat and not the future direction of the stat. Naturally current reported numbers can impact and will impact the direction of the future number especially at inflection points. Normally though the market sweats over gyrations of a number even though the direction of the economic number is unquestioned.

Recently the employment numbers have been the major focus of the market. Both the weekly jobless claims (leading indicator) and the monthly jobless numbers (lagging indicator) are routinely hashed and rehashed by the media. Constantly focusing on the absolute monthly number and not the direction or future number. For the employment numbers, it's highly unlikely that the direction (in this case improvement) will change as long as the FED remains with its accommondating plan.

For example: when the weekly jobless claims comes in at 550K when the estimate was say 535K as an investor you shouldn't become overly alarmed when the 4 week average drops and the estimate for the following week is say 520K. Basically what we're saying is that the trend is much more important then whether or not an estimate is met. True, the market valuation is based on these estimates and it might selloff initially but the ultimate direction of the market will be based on the direction of the data. If the number is going to be 520K, 510K, and 500K, those improving numbers will quickly eliminate any negativity from missing an estimate.

For the jobless claims, Bloomberg has the consensus estimates for next week. Right now the consensus is for 512K next week or the same as last week. Importantly though the estimates range as low as 495K. A number below 500K would be very bullish for the market and is likely just around the corner if not this week. Anybody missing this point is missing the trend. This week might actually post at 520K, but its undeniable that we'll see a sub 500K and likely then a sub 400K number as well. Is the market going to selloff with that trend?

Also note the graph of how the weekly numbers and 4 week average has steadily declined. Anybody sweating each weekly number has been missing the big picture. So no matter what happens this week, it will unlikely change the ultimate trend of lower claims.

Market Consensus Before Announcement
Initial jobless claims declined 20,000 in the October 31 week to 512,000. The pace of layoffs has been on a downtrend as the four-week average was down for the ninth straight week, 3,000 lower at 523,750. Continuing claims are also declining but here the change is likely a negative, due largely to the expiration of benefits. Continuing claims, in data for the October 24 week, fell 68,000 to 5.886 million for the seventh decline in a row.

PriorConsensusConsensus Range
New Claims - Level512 K512 K495 K to 525 K

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