Pre-market indexes are mixed this morning, with the Nasdaq in the green slightly and the Dow and S&P 500 a bit in the red. It’s been a tough week for all three indexes, following a very strong March — especially the latter half. The Nasdaq and the small-cap Russell 2000 have been taking the brunt of the bearishness since Monday, with sea changes rather unlikely on this slowish news day (so far).
However, it is Thursday, and like most Thursdays we see new data on Initial Jobless Claims. What we see this morning will take your breath away: 166K on new claims — a new low going back to 1968, which is extraordinary. New jobless claims in the U.S. have not been this low since the Beatles were recording The White Album. And revisions to the previous week are equally impressive: 171K, versus the 202K originally reported.
Continuing Claims moved in the opposite direction: 1.523 million, while still historically low and nothing to shake a stick at, are still a big jump from the originally reported 1.31 million last week. This previous print has been revised upward notably, as well: 1.506 million. Both Initial and Continuing Claims have been readjusted for seasonality and other reasons, from 2017-2021, which accounts for some of these historic levels. The other reason is because our labor market is extremely robust right now.
One caveat in these labor force readings is how they relate to overall inflation. It’s a complicated issue to get one’s arms around, but a couple key stats help pave the way toward a basic understanding where we are, approximately, right now: the most recent Consumer Price Index (CPI) reached 7.9%, while Average Hourly Earnings from the nonfarm payroll report last week showed year-over-year growth of 5.6%. These are not directly comparable data points, but they do spell where the problem is currently.
Basically, while wage growth is the highest we’ve seen since before the pandemic began, it’s not keeping up with current inflation metrics. This is why the Fed has turned hawkish of late, as we saw in the FOMC minutes from March’s meeting when they were released yesterday. This caused some selling among market participants, but it does point to responsible governance of our economy, to whatever extent this is the Fed’s domain. We see employment has gotten to desired levels; next thing is to bring inflation under control.