US Jobless Claims Preview: It must be spring--signs of recovery

• Initial claims forecast to fall to 1.8 million from 2.123 million.
• Continuing claims expected to drop to 20.05 million from 21.052.
• Almost41 million unemployment claims have been filed in 10 weeks.
• ADP payrolls decreases much less than predicted in May.
• Markets have clear signs the worst has passed.
• Dollar pandemic risk-premium eliminated from all major pairs.

The tempo of destruction wrought by the shutdown of the US economy has begun to abate as job losses decline and a few indicators point to improvement if not yet recovery.

Labor market statistics

Initial jobless claims are forecast to fall to 1.8 million in the May 29 week their lowest level since the viral crisis began almost three months ago.

Continuing claims which unexpectedly plunged 3.86 million in the week of May 15 to 21.052 million are forecast to fall to 20.050 million.  

Continuing claims

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Private payrolls from ADP, the precursor to this Friday’s NFP report, fell 2.76 million in May, less than a third of the 9 million forecast and the April loss was revised down to 19.557 million from 20.236 million.

Business surveys from the Institute for Supply Management have lifted from their April lows.  The manufacturing purchasing managers’ index registered 43.1 up from 41.5. The new orders index rose to 31.8 from 27.1 and the employment index edged to 32.1 from 27.5. 

Services showed greater life with the overall PMI rising to 45.4 in May from 41.8, and new order jumping to 41.9 from 32.9. Employment inched to 31.8 from 30 in April.  

Services PMI

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Hiring is normally the last indicator to move in a recovery as firms like to be sure an improvement in conditions is underway before increasing payroll costs.  

The fall in unemployment insurance filings and the sharp reverse in continuing claims suggest that the end of business restrictions in many states has returned some workers to their jobs.  This movement can only intensify in the weeks ahead and will build on itself as reemployed workers regain income and deferred spending by the remaining 75% of the labor force revives consumer spending.  

Conclusion: Market conditions

Equity and currency markets have priced in a sure and perhaps rapid return from the closures that have ravaged the US economy. 

The Dow and S&P 500 were ahead 2.15% and 1.48% on Wednesday afternoon and are down just 7.89% and 3.2% respectively on the year.  The dollar has surrendered all of its risk-aversion premium with all of the major pairs at or close to their pre-crisis levels.

Yields in the Treasury market have jumped with the 10-year up eight points to 0.757%, its highest level since late March and the 2-year higher by three points to 0.196% its best since May 2.

If the statistical forerunners of the past two weeks are accurate the trends in equities, bonds and the dollar will continue for the immediate future.

Markets have pondered the resumption of economic activity for weeks debating the letters of recovery, whether a V, L, W, U or some permutation would describe the trajectory. 

It seems that that history may be our best guide after all. The bigger the drop, the higher the bounce. .