Batter Up – One Economic Indicator That’s Flashing Green - April 15, 2019

The U.S. economy slowed late last year, and the economic data we’ve received since has been mixed. By mixed, it’s not that U.S. growth has stalled. If this were a baseball game, we’d be getting a mix of strikeouts, singles, and doubles. Still, with one important exception, our hitters aren’t knocking the ball out of the park as they were last year.

That important exception – first-time claims for unemployment insurance, which is a key leading indicator of economic activity. It can be volatile on a weekly basis, but the recent trend has been to the downside.

On Thursday, the Dept of Labor reported first-time claims fell 8,000 to 196,000 in the week ended April 6. It’s not only the lowest of the cycle, but it’s the first time claims have fallen below 200,000 in 50 years.

What is this telling us? It suggests fewer layoffs may be tied to a pickup in business activity. Note the rise in claims late last year (Figure 1). It reflects the slowdown in business activity.

We see the same trend in continuing claims. Continuing claims are reports filed weekly or bi-weekly by unemployed workers who are receiving jobless benefits. You see the uptick in late 2018/early 2019, which suggests finding work may have become a little more difficult. The recent drop also suggests an uptick in economic activity.

We would like the trend in claims to be corroborated by other reports, but what we’re seeing in this leading indicator is encouraging. It suggests the recent soft patch in economic activity is abating.

One final remark –the S&P 500 Index closed within 0.8% of its September 20th closing high on Friday (St. Louis Federal Reserve/MktWatch data). A growing economy and the Fed’s newfound flexibility are playing a role in this year’s rally.