The Market Is Wrong About Rate Hikes

The latest jobless claims report from the week of April 3rd wasn’t great. This is one of the bears’ last credible arguments that the labor market isn’t accelerating. However, we wouldn’t hang our hats on this metric because of how unreliable claims have been since the pandemic began. Data has been all over the map due to mistakes and fraud. It’s entirely possible that claims drop 100,000 in a few weeks due to some type of adjustment we don’t realize needs to occur. Since the ISM surveys show companies can’t find enough workers and the BLS report showed almost 1 million jobs added in March, it’s hard to believe the labor market isn’t rapidly improving.

Last week’s reading was revised up 9,000 to 728,000 initial claims. This week’s report showed claims rose to 744,000 which was above the consensus of 680,000 and the highest estimate of 705,000. The increase in non-seasonally adjusted claims was similar as they rose from 723,000 to 741,000. There was a massive 85,000 decline in PUAs to 152,000 which was brought about almost entirely by Ohio which had a 75,000 decline to 13,000. Finally, its data makes sense.

The huge decline in PUAs since the week of March 6th is almost all related to the data becoming more accurate. We find it a bit jarring that there are still 893,000 new total applicants each week given the strength in consumer spending and the reopening. It will be hugely problematic if claims stay above 700,000 through May because by that point the economy will almost be fully open. We think there will be a sharp decline in claims in the next few weeks due to the data getting better and more jobs being created.

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