MACRO MONDAY 11~ Cont. Jobless Claims MACRO MONDAY 11
Continued Jobless Claims ECONOMICS:USCJC
Continued Jobless Claims are the continued unemployment benefits claimed by workers who made their first “Initial claim” and remained unemployed in the weeks that followed.
In other words, Initial Jobless Claims account for only the people that claimed their first week of unemployment benefit whilst Continued Jobless Claims accounts for people who continued to seek their unemployment benefit into week 2 and subsequent weeks.
In order to be classified as a continuing claim, an unemployed individual must be unemployed for at least one week after filing an initial claim. They will be removed from the metric when they return to work.
Whilst continuous claims do provide an aggregate of accumulating unemployment numbers over time, initial claims are reported sooner and considered more important to financial markets. Regardless there is a clear historic pattern on the Continued Claims Chart that demonstrates that continued jobless claims increase prior to recessions, and at present we are reaching higher than historical averages that have preceded recessions.
The Chart
The chart can be summarized as follows:
- Recessions are in red
- Increases in Continuous Jobless Claims prior to
recessions are in blue
- It is clear that prior to recessions Continuous
Jobless Claims typically increase but for how long
and by what amount?
- The min/max increase in claims prior to recession is
between 218k - 614k
- The min/max timeframe of increasing claims prior
to recession is 6 – 21 months
- The average of the above is a 424k claim increase
over a 11 month period.
- At present we are now at the avg. 11 months time
period and sit at an increase of 380k, however we
exceeded 520k in continuous claims increases in
Apr 2023. This obviously means since April 2023
continuous claims have reduced however the
reduction is marginal against the larger move.
- I have set out levels on the chart for us to monitor
going forward in line with the min and max claims
amounts and timelines as above. We can monitor
these levels on trading view going forward just by
pressing play and seeing if we are nearing or hitting
the indicative levels.
- If we reach the average increase amount at >424k
AGAIN we are entering into higher risk of recession
territory. We are already in month 11 of increases to
continuous claims which is the average timeframe
prior to a recession commencing. To be exact it is
approx. 11.5 months therefore the 2ndhalf of the
month of September is where we step into a higher
risk level.
Currently, the max increase in claims prior to recession is projected to be at a level of 1.928 million (based on historic claims) and the max timeframe is out to Jun 2024 (based on historic timeframes) thus indicating that between Aug 2023 and Jun 2024, subject to ongoing increasing continuous claims (holding above the average level of 1.734 million) it is probable that there will be a recession within this 11 month time window (Not guaranteed). If continuous claims fall below their minimum historic pre-recession level of 1.51 million I believe this might invalidate the possibility of a recession or at least have a significant lagging effect on time horizon. At present this outcome seems unlikely but anything is possible and we can monitor this on an ongoing basis.
We now have a number of charts demonstrating that from Sept 2023 to Mar/Apr 2024 we have a significantly increased probability of recession. These charts were shared just a few days ago if want to have a look.
These charts are as follows:
1. The current yield curve inversion on the 2/10 year Treasury Spread provided advance warning of recession/capitulation prior to all of the recessions outlined on the below chart however it provided us with a wide 6 - 22 month window of time from the time the yield curve made its first definitive turn back up to the 0% level. Sept 2023 is the 6th month of that 6 – 22 month window. The 22nd month is Jan 2025. The average time before a recession after the yield curve starts to turn up is 13 months or April 2024.
- Based on this chart it is clear that there is
substantially increased recession risk between
Sept 2023 – April 2024.
2. Interest Rate Hike & S&P500 chart (Macro Monday 8). In the event that the Federal Reserve is pausing rates from Sept 2023, historic timelines of major hike cycles suggest a 7 month pause like in 2000 or a 16 month pause in line with 2007 (an avg. of both is c.11 months). For reference COVID-19’s rate pause was for 6 months.
- 6 months from now would be March 2024
and 16 months from now would be Nov 2024. The
average of both Jun 2024.
- Based on this chart it is clear again that there is
substantially increased recession risk between
Sept 2023 – March 2024 of recession,
increasing again thereafter from May onwards.
3. Initial Jobless Claims are currently increasing and are reaching pre-recessionary levels. If initial jobless claims surpasses its historic pre-recession averages of 252,000 of increased claims and if claims continue to increase past Nov 2023, this suggests we are entering into a much higher risk of recession.
- Whilst this chart is not indicating the Sept 2023 to
Mar/Apr 2024 time window as the two charts
above are, it may present a date within that
window of time from Nov 2023 forward (subject
to continued increases).
4. Today’s chart Continuing Jobless Claims suggests
that we have broken past both the increase in claims average of 424k (to 1.734 mln) and we are into month 11 which is the average timeframe of increases prior to recession commencement.
- Todays chart is suggesting we are already in a
recession or have just started into one. Another
breach back above the 1.734 mln level (average
level) would be a good confirmation signal that the
risk of recession remains on the table.
With this in mind it is important to recognize that on average official declaration of recession can be declared up to 8 months after a recession has started, so we should be on the look out for indications of a recession starting (without the official declaration).
Today’s chart and the above charts suggest the following:
1. Significantly increased risk of recession from the 2nd half of September 2023:
- 2/10 year Treasury Spread 6 – 22 month recession
risk window opens from Sept 2023.
- Average timeframe of increases in continuous
jobless claims prior to recession is from the 2nd
week in September.
- The last time the Federal Reserve paused interest
rates, the COVID-19 crash occurred 6 months
later. 6 months from a Sept 2023 pause would be
March 2024.
2. The Recession Risk increase higher from Nov 2023
- Average timeframe of increases in Initial Jobless
Claims prior to recession is hit.
Adding to the above concerns is that M2 Money supply is still reducing (Macro Monday 8) and Global Net Liquidity is continuing to reduce (Macro Monday 4) as the S&P 500 is hitting a major resistance zone when accounting for M2 money supply (Macro Monday 8). At present it is clear that liquidity is reducing both globally and in the US. Currently fiscal stimulus appears to be filling the gaps and may be causing additional lagging effects to the changes we have seen imposed by Federal Reserve (balance sheet reduction and increased interest rates). Keep in mind that the Fed is also targeting higher unemployment to help quell the effects of inflation thus adding to the relevance of the Initial Jobless Claims and continuous jobless claims numbers.
We can monitor these charts on my trading view just by pressing play and seeing where things are going. Regardless ill be providing updates along the way of claims releases and other important data.
Be safe out there as we enter into a high risk zone (no guarantees)
PUKA
