Kelly Evans: “Jobless claims” summer

Of course the market jumped when jobless claims came in better than expected this morning. Ever since the weak jobs report last Friday, each new incoming piece of macro data is being treated with maximum significance as investors try to figure out whether we are heading into recession or not.

And jobless claims are probably the best leading economic indicator. They have a long track record. They are released every Thursday morning. And they are an excellent gauge of whether the labor market is rapidly weakening--or not.

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But...they can be volatile, and sometimes give false positives, as I learned the hard way last year. Claims rose sharply in June, stayed elevated all summer, and peaked in August at a level above 250,000. Stocks were also selling off, which made it feel like the economy was starting to roll over. Then it stopped. Claims improved from August through October, when stocks finally bottomed and then embarked upon a roaring rally.

A similar pattern, for whatever reason, could be playing out this year. Claims jumped to nearly 250,000 last week, an unwelcome development that teed up the market for the Friday jobs-report disappointment. If claims had kept rising today, worries about the economy--and calls for Fed rate cuts--would surely mount. Instead, they reversed lower to a relatively normal 233,000, which triggered a 50-point jump in the S&P pre-market and the 10-year yield rising back towards 4%.

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Plus, as a percentage of the labor force--which, as we discussed yesterday, is at an all-time high in size--claims look even healthier. At current levels of around 0.14%, they are at half the range that they were when the 2007, 2001, and early 1990s recessions began, as economist Jim Paulsen notes.

Point being: we need to see claims rise well above 250,000 and stay there into the autumn months before it will be a useful "tell" that recession worries should be front and center. And if the Fed cuts rates in the meantime (as disinflation is giving them room to do), prospects for further job creation should only brighten.

See you at 1 p.m!