Claims Rule Everything Around Me C.R.E.A.M.

Last week Bloomberg’s Michael McKee was interviewing one of my favorite economists, Neil Dutta of Renaissance Macro, and asked him whether he thought initial jobless claim deserved such a wide following or if it might be an overrated indicator. I was pleased to hear Dutta confirm its importance.

If anything this data point is underrated. It is hard data so it is not reliant on estimates (excepting rare examples like California last year when a state fails to correctly collect it). It is released with a six day lag so it’s about as close as one can get to real time. It is subject to an extremely low level of revisions. However, unlike numbers like NFP, durable goods, retail sales, or industrial production it rarely results in market volatility upon its release.

The lack of an upward trend in claims is why I stuck by my guns over the recent data weakness being an entirely weather related phenomenon. My charts below are a testament as to why it is unquestionably the best indicator of the domestic economy.

Let’s start with a comparison to another labor metric: Claims 4WMA (white) vs. Unemployment (orage).

One more labor metric: Claims 4WMA inverted (white) vs. NFP (orange) with recessions shaded red. Claims offers a far less noisy data set.

Overall economic growth: Claims 4WMA inverted (green) vs. GDP growth year over year (blue).

Soft manufacturing data: Claims 4WMA inverted (red) vs. US PMI (blue)

Hard manufacturing data: 4WMA inverted (orange) vs. US auto assemblies (white) with recessions shaded in red.

Sentiment data: Claims 4WMA inverted (green) vs. Consumer Confidence (white)

And the ultimate sentiment indicator: Claims inverted (green) vs. SPX (orange)

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