May 19, 2012 Weekly Jobless Claims Data Suggests Month Will Be Weak

-Unless the labor participation rate changes significantly again.

Earlier in the year we were critics of those who claimed the labor force participation rate was skewing the unemployment data.  The changes in the labor participation rate were marginal compared to recent weeks where potential employees have fallen off the map.  The number of people who got jobs  last month was three times the number of people who opted out of the labor force altogether, started a small business or are otherwise – not counted.

Initial Jobless Claims Data Similar To March and April 2012

Today’s dismal initial jobless claims data is further proof that the labor participation rate does matter and numbers that show unemployment lower are skewed to the upside.  Applications for jobless benefits dropped by only 2,000 for the week ended May 19, 2012 the Labor Department said today making the seasonally adjusted rate 370,000.  These numbers won’t put the economy in expansion mode anytime soon and suggest monthly unemployment data will be roughly 120,00 +- 50,000 similar to April and March.  Keep in mind, the standard deviation for monthly unemployment numbers are rather high which is why we forecast in a significant range.

April 2012 Durable Goods Orders Fall Sharply

Orders for goods meant to last 3 years or more dropped sharply in April. Non-defense durable goods excluding aircraft, plunged 1.9% in April after falling 2.2% in March.  This raises the chances the Fed could ease further as the risk from global economic contraction has increased.

We believe jobs numbers will be important for fundamental economic change to take place in the next few weeks and are weighting this data more importantly in our analysis than any other economic data points in the short run such as car sales or housing data which needed to snapback due to extreme pent up demand.

The political economy underpinnings on low jobs growth are important for equity values between now and the November elections which makes the timing of any further easing important as the window of opportunity begins to close.   We would not be on the long side of equities after the next two months without further easing in the U.S. and added liquidity abroad.  The May 2012 monthly jobs number will likely be even more important than April as a quarterly trend is now affirmative to the down/lackluster -side.