Post written by Eric Vermulm, CFA | Chief Investment Officer | Stockman Wealth Management
The weekly Initial Jobless Claims report is one of best leading indicators on the U.S. economy.
Released every Thursday morning, it tracks the number of people who file first-time unemployment applications. The report provides a timely look at the leading edge of the U.S. employment situation.
The Department of Labor started tracking claims in January 1967. This gives us 50 years of continuous data to analyze. The following chart plots every weekly claims release and recession of that half century.
Historically, the U.S. economy has never gone into a recession with Initial Claims hitting new lows. In every instance, the number of people filing first-time unemployment applications has risen, often substantially, prior to the business cycle deteriorating (red arrows in the graph).
The average lead time from the bottom in Initial Claims to the start of a recession was 13 months, providing a clear warning for upcoming recessions and market weakness.
In recent weeks, Initial Claims for Unemployment have continued to trend down (green arrow in the graph), reaching the lowest levels since 1973. Since peaking in March 2009, the Index has steadily fallen, inline with a strengthening economy and improving job prospects.
If a recession were to begin now, it would be unprecedented in the last five decades of data. Unless we see a dramatic shift in Initial Claims, a strong employment picture is likely to remain a tailwind for the economy and the stock market in early 2017.
This article is an excerpt from Stockman Wealth Management’s January 2017 “Market Update” newsletter, which can be found at the following link:
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