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Keep an Eye on the Bouncing Jobless Claims
Posted by: mcsmack ()
Date: August 19, 2010 08:32AM

AHEAD OF THE TAPEAUGUST 19, 2010
Keep an Eye on the Bouncing Jobless Claims
By KELLY EVANS
[AOT]


If there is a lesson investors should take from the economy's recent malaise, it is to mind the message coming from jobless claims.

The Labor Department's weekly tally of new claims for unemployment benefits—released every Thursday—has a remarkable track record of foreshadowing economic turning points. Its recovery in spring 2009, for example, coincided with the stock market's bottom and foretold what turned into an economic rebound.

The level of new claims fell steadily from a high of 651,000 in March 2009 to a low of 439,000 in early February. But it has since been drifting back up. Its increase to 484,000 in the first week of August is particularly troubling. MF Global notes that, over the past year, claims above that level have been consistent with a decline in private-sector payrolls.


Of course, the claims figures are highly volatile week to week, which is why the latest numbers, expected to show only a marginal improvement, will be especially telling for investors. Economists have cited a variety of special factors as distorting the behavior of claims this summer, from the lack of typical auto-plant shutdowns to the hiring and firing of temporary workers for the 2010 Census. But if the level of claims stays at or near current levels as those effects fade, it is a warning sign.

Plus, despite all the "special" factors at play this year, it isn't as if claims have lost their predictive ability. To the contrary, their stall-out this spring correctly foreshadowed a pause in both the stock market's rally and the broader economic recovery.


Still, claims haven't risen enough yet to spark worries of a "double-dip." They behaved similarly after the 2001 recession, improving pretty steadily until September 2002, then began to deteriorate again. That augured a 13% drop in the stock market over the next month, a widening in high-yield bond spreads and higher market volatility, notes Moody's Investor Service. But it didn't derail the turnaround.

There are hints of firming in other labor-market indicators, like the July National Federation of Independent Business survey showing small-business hiring plans at their highest since fall 2008. Those offer some reassurance.

But investors should only get excited if claims begin improving as well.

Write to Kelly Evans at kelly.evans@wsj.com

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