Jobless Claims Fall - Recession Not Close

Jobless Claims Plummet

It’s clear that the labor market is in solid shape despite the weak February BLS report. The fact that jobless claims bottomed in September is meaningless because claims are so low now. I’m expecting the March labor report to be solid because of this. Estimates aren’t out yet, but I would be surprised if less than 100,000 jobs were created. 

As you can see from the chart below claims fell from 216,000 to 211,000. That beat estimates for 225,000. The prior week’s report was revised down from 221,000. That’s an unusually large revision for this report.

4 week average was initially 225,000; it was revised to 220,500, meaning it didn’t increase from the week prior. Now the average is only 217,250. After being up 5 weeks in a row on a yearly basis, the 4 week average is now down 1.6% from last year. 

Usually claims and the stock market are tightly correlated. If that correlation continues, we should see a rally in April. Finally, continuing claims were up 13,000, but the 4 week average fell 5,000 to 1.751 million. The unemployment rate for insured workers was 1.2%.

There is no reason to think the economy is near a recession despite the doom and gloom promoted by some investors. Usually, after corrections when the market is getting close to a new high there is an outburst of doom and gloom. Bears get nervous about their position.

Jobless Claims - Fund Managers Overweight Cash

The chart below supports my point about the bears being nervous as it shows fund managers in March had the biggest overweight cash position since January 2009. Those skeptics of this rally need the market to fall a bit so they can get back in and stop underperforming. 

Keep in mind that although stocks fell from January 2009 to March 2009, that was very close to the bottom. In this case the Merrill Lynch survey is something to fade rather than to follow.

Jobless Claims - Few Indicators In A Recession

The chart below shows a propriety measurement of economic indicators similar to the Chicago Fed national activity index. 

As you can see, the percentage of indicators in recession is about 11%. Net percentage of indicators decelerating is about 70%. In rate of change terms, this economy is doing just as bad as the economy in late 2015-early 2016 when there was almost a recession. However, very few indicators show we’re in a recession.

The economy’s growth is falling, but there’s still no evidence of a recession. It seems like this slowdown has lasted a while because I have been talking about for almost a year. However, I discovered it before the stock market reacted to it. 

On the other hand, the stock market has apparently discovered this slowdown will end before any signs of growth turn up. I’m still waiting for those signs. If growth keeps falling, we could see stocks reverse. I don’t think there will be a recession this year. But each weak report slightly increases the odds of one occurring.

Jobless Claims - Dallas Fed Shows Slight Improvement

While the manufacturing sector has been weak, it’s not a surprise to see the Dallas Fed’s manufacturing production index improve in March because oil prices are up. Gas prices are up 43 straight days which is the longest streak since 2011. Production index improved from 10.1 to 11.5 and the general activity index fell from 13.1 to 8.3 which slightly missed estimates for 9.8. 

On the negative side, the new orders index fell from 6.9 to 2.4. Capex index fell 6.6 points to 12.1. Finally, the outlook index fell from 14.2 to 6 and the outlook uncertainty index fell from 4.1 to 3.4. That means uncertainty increased at a lower rate. Even with some of these slightly weak numbers, I consider this a solid report. Many other index’s such as the Markit PMI show manufacturing is very close to contracting.

In the category measuring 6 month expectations, the production index increased 7 points and the growth rate of new orders index was up 1.8 to 32.6. New orders fell 1.4 to 43.5, but capex increased 12 points to 36.2. Finally, the outlook fell 9.2 points to 17.5. General activity index rose 2 to 19.7. 

Let’s look at a few quotes to see the details of this report. Not all the regional Fed reports include quotes unfortunately, but this one does so it is valuable.

A transportation and equipment firm stated, “Spring is our busiest time. However, this year seems exceptionally strong and we are hiring to keep up with demand.” Obviously, this is only one firm in Texas, but this shows you the doom and gloom promoted by the bears is out of place. Secondly, a non-metallic mineral product firm stated, “The Federal Reserve’s recent change toward a more dovish policy stance is appropriate and will support housing and our business.” 

Jobless Claims - It’s no surprise that dovishness is impacting the economy positively

But I am surprised that a mineral product firm mentioned it. The quotes in general suggest international markets are weak, the labor market is tight, and tax reform is still helping the economy

I will be reviewing the Richmond Fed and Kansas City Fed reports in a following article to get you set for the March manufacturing ISM report which will be released on April 1st. The PMI was 54.2 in February which is relatively solid versus the Markit reading.

Jobless Claims - Conclusion

Bearishness is popular as fund managers have a high cash hoard. However, few indicators are recessionary. The jobless claims indicate the labor market is strong as the February BLS reading was likely a blip. Even manufacturing, which is the weakest part of the economy, only shows growth is slowing. 

That’s nothing compared to the sharp contraction last cycle. The ECRI leading index showed weaker yearly growth at the start of the year than at any point prior to or during the last slowdown. That means this slowdown might get worse before it gets better. 

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