Why April 2014 saw the best payroll numbers since January 2012 (Part 6 of 10)
Initial jobless claims
The weekly initial jobless claims report for the week ended April 26, was released on Thursday, May 1, by the U.S. Department of Labor Employment and Training Administration. Initial jobless claims were up sharply in the week to 344,000 from 330,000 the previous week, missing consensus estimates by 24,000. This was also the highest reported level for initial claims since February 22, 2014. Continuing claims also rose by 97,000 to 2.771 million for the week ended April 19. The insured unemployment rate posted a 0.1% increase to 2.1% for the week ended April 19.
What are weekly initial jobless claims?
Weekly initial jobless claims are an indicator that measures the number of persons filing for unemployment insurance for the first time. An increase in initial claims usually implies a slowdown in economic activity, whereas a decrease in initial claims means the economy is growing.
Why the level of initial claims in April is worrying
While other labor market indicators, like the Bureau of Labor Statistics job additions in April and ADP’s private payrolls report, are showing better-than-expected job creation figures for the month, jobless claims have deteriorated over April, indicating that all is not well yet in the labor market. Initial claims have risen steadily in the month of April, from the reported level of 301,000 for the week ended April 5 to 344,000 last week. The four-week moving average has tended slightly upwards, from 316,500 on April 5 to 320,000 on April 26, although the level is about the same from a month ago.
Initial claims, though notoriously fickle, also make deciphering the extent of the labor market recovery that much harder. The Fed has already indicated that it will consider a “dashboard” of labor market variables besides the unemployment rate before coming off the monetary stimulus pedal by raising the Fed funds rate, which has stayed low in the range 0% to 0.25% since December 2008. While this would keep yields at shorter maturities low and bond prices for those maturities steady, yields for longer-term Treasuries (TLT) have already increased since May 2013, when the Fed first hinted that it was considering ending its monthly bond buying program.
ETFs investing in short-term T-Bills include the SPDR Barclays 1-3 Month T-Bill (BIL), while ETFs investing in longer-term Treasuries include the iShares 20+ Year Treasury Bond ETF (TLT). While BIL prices have declined just 0.1% from May 1, 2013, to April 30, 2014, the ETF price for TLT has declined 7.8%. Also, as TLT has a higher duration than BIL, its price sensitivity to interest rate changes are greater. Similarly, ETFs investing in short-term bonds like the iShares 1–3 Years Treasury Bond ETF (SHY) will have lower interest rate risk, as they have a lower duration than ETFs like the iShares 7-10 Year Treasury Bond ETF (IEF) and the iShares 10-20 Year Treasury Bond (TLH), which invest in longer-term bonds and so have higher durations and interest rate risk.
To find out more about interest rate risk and duration, please read the Market Realist series Interest rate risk: Measure and avoid the pitfalls of duration.
In the next part of this series, we’ll discuss another key labor release, Gallup’s Payroll-to-Population metric.
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