US Initial Jobless Claims Preview: Turn that rear-view mirror around

Market sensitivity to labor indicators, especially the initial claims figures is understandable. It was the historic jump in late March filings that announced the new economic reality of the pandemic.

Initial Jobless Claims are forecast to drop to 730,000 in the November 20th week after climbing 31,000 to 742,000 in the prior release.

Continuing Claims are expected to drop to 6.02 million from 6.372 million bringing them to their lowest point since 24.912 million n the week of May 8th.

Initial claims history

The modest gain in claims last week from 711,000 to 742,000 is not the first or the largest increase in the nine-month US pandemic.

Initial Jobless Claims

Initial filing have reversed five previous times, in amount ranging from 7,000 in the week of September 18th to 114,000 on July 17th and 133,000 on August 14th to 1.104 million. In all of the incidences but one claims resumed their decline the following week.

Overall weekly claims have dropped 89.2% from the March 27th high of 6.867 million.

The improvement, however, demands context. Even the most recent figure, which is lowest of the COVID-19 era, the 730,000 people who filed for unemployment benefits, is higher than any single week in history before March.

At the height of the financial crisis 667,000 filed for benefits in the week of February 24, 2009. In that entire month 1,933,000 people filed for insurance. At the peak of the layoffs this year 23 million people were fired from March 27 to April 17.

US economy

The US economy more than reversed the second quarter's 31.4% decline in annualized gross domestic product by soaring 33.1% in the third. The Atlanta Fed estimated that growth was running at 5.6% in the current quarter on November 18th up from 3.5% on November 13th.

Payrolls have rehired 54.4% of the 22.16 million job losses in March and April. Employment Index reading in the manufacturing and service sectors from the Institute for Supply Management expanded October and the number of job openings are nearing the levels from before the pandemic.

American firms added 638,000 workers in October the sixth straight month of job gains. Payrolls for November will be released on December 4th and are forecast to produce 600,000 hires.

Consumer demand has remained healthy despite the turmoil in the labor market. October Retail Sales rose 0.3%, slightly less than anticipated, but the average gain over the eight months of the pandemic beginning in March is a very respectable 0.89%.

In September the Federal Reserve's Projection Materials estimated that the US economy would contract 3.7% in this year. Market forecasts now anticipate a 2.7% reduction in 2020. The Fed will release updated predictions at its December 16th meeting.

Conclusion

Currency markets are likely to take their cue from surging equity prices.

The risk-off dollar higher trade that has been the standard response to negative economic or pandemic news will probably be subsumed in equity euphoria.

Initial Claims, even if they rise, are explaining an old reality. Markets like to look ahead.