jobless claims add to market bouyancy

Initial jobless claims in the US jumped sharply in the week ending July 14 to 386,000, as reported today by the US Labor Department, while economists surveyed by Bloomberg were expecting 365,000. Last period claims were revised higher by 2,000 to 352,000, but still the lowest number in weeks.

Initial jobless claims have been consistently decreasing from the 400,000 level last seen in October 2011 until March 2012, when it stabilised at around 360,000. From that point, job creation has been frustratingly flat as the latest payrolls reports show and jobless claims have been rising accordingly hitting 380,000 – 390,000, over the last few weeks. Last week there was a huge decrease from 376,000 to 352,000 (350,000 as initially reported), but the move was more than reverted this week with a jump to 386,000.

This week’s rise has been largely attributed to seasonal adjustments for summer retoolings and shutdowns centred in the auto sector. According to what a Labor Department official said the recent volatility in the numbers is due to a change in the timing of annual automobile plant layoffs, undermining the Labor Department adjustments to the data and making it difficult to interpret and identify a direction for the job market.

Is this reversion entirely explained by seasonal effects, or just a proof the last observed value was more an outlier than a new tendency? Unfortunately only time will tell but there is no doubt the job market is losing momentum. 

The 4-week average for initial claims and continuing claims is now rising since the lows seen at the end of the first quarter. The second quarter was relatively flat, and according to Ben Bernanke’s estimates for the job market and GDP growth for the current year, it seems the Fed is not seeing any improvement occuring, at least not something noticeable.

Traders and investors started the day ignoring the negative jobless data and closed towards the highs. This bullish trend has been boosted by positive 2Q earnings coming from corporate America too. When, or if, that stops, investors will no doubt need to concentrate on macroeconomic data and on what is happening in the Eurozone – an area still troubled by sovereign debt woes as todays debt auction in Spain reiterated

Filipe R. Costa