Joe Lavorgna, Deutsche Bank’s Chief U.S. Economist, is wide recognised as one of the most bullish folks on Wall Street. So it’s worth noting when he identifies bad news.
And that’s exactly what he did in a note to clients today following today’s disappointing initial jobless claims report.
The good news for the labour market is that initial jobless claims, one of the best short-term leading indicators of the change in nonfarm payrolls, remain well below where they were at similar points in 2010 and 2011. At present, the four-week moving average on claims is 386k, which compares to 423k last year at this time and to 463k in 2010. However, the bad news is that claims have been trending higher for the past month. This is shown in the chart below along with the behaviour of claims in 2010 and 2011. The current four-week moving average is now at its highest reading since December 3, 2011 (391k).
So what does this mean for the June nonfarm payrolls report?
Since the latest data cover the employment survey week, the modest deterioration in claims suggests that June nonfarm payrolls should remain sluggish and perhaps even slow relative to their disappointing April and May gains of +77k and +69k, respectively. Our early read is +75k on June nonfarm payrolls and +90k on private payrolls; with continuing claims up modestly in June compared to May—this series closely tracks the changes in the number of unemployed workers—the unemployment rate is expected to stay at 8.2%. We will revisit our payroll and unemployment rate forecasts as new information comes in, but at the moment, the labour market news is certainly discouraging.
Here’s that unnerving initial claims chart he was talking about:
Photo: Deutsche Bank