As Expected, Latest Initial Claims Were Below Consensus

Last week’s initial jobless claims came in at 350K, well below the market's expectation of 375K.  As we mentioned earlier this week, we expected this ‘good news’ given that the 4th of July holiday was in the middle of last week.  Historically, seasonally adjusted initial claims have dropped during those types of holiday shortened weeks.  We note the upward revision trend might be on its way back as the prior week's figure was upped by 2K to 376K.

A couple of things stood out.  On the negative side, we noticed that the seasonal factor applied to the week of 4th of July this year was much higher than its historical average since 1967; 125.8 versus 114.9.  The applied seasonal factor was also much higher than the 110.8 average since the beginning of the last recession.

We also looked at how the seasonally adjusted initial claims of the 4th of July week compared with the prior week historically.  On average since 1967, that figure turns out to be approx. 1,955.6 lower, which can be considered as good news given that this year’s figure was decrease of 26K.  Initial claims for the following week usually go up by 1,133.3, which may partially offset that good news.  We’ll see that next week.

We looked at the non-seasonally adjusted initial claims the same way and surprisingly found that they usually go up by around 67,152.1 during the 4th of July holiday week, and decline by 27,474.8 the following week.

With all of that said, it appears that the market understands how the holiday shortened week may have impacted the initial claims figure, as the S&P 500 is down nearly 1% during the first 20 minutes of trading.  If today's initial claims number is viewed as good news by economists, the market could still see it as bad news as it reduces chances of a QE3; especially after the release of the FOMC minutes yesterday which indicated a QE3 will not be launched unless we see significant shocks to the economy and/or the markets.