Initial claims for unemployment insurance is a leading indicator of the direction of the economy. It varies from the actual unemployment rate, which is a lagging indicator. News headlines rarely differentiate enough between the two numbers and the difference between their leading and lagging characteristics. If you want to understand where the economy is headed, keep an eye on initial claims and forget about the actual unemployment rate.
I'm glad you didn't put a big circle around the chart in January, when the line dipped down almost as much as it has now.
ReplyDeleteActually, a good trader knows when to consider a downturn important and when it is not. By this I mean a recovery will generally include a dip in intial claims. If you don't see that, you are not going to get a recovery.
ReplyDeleteIt's more of a confirming leading indicator than the key indicator like money supply and the stock market. I consider intial clams like a fever. Suppose you think someone has malaria (and I am not a medical person but let's assume the facts)but thay don't have a fever, thus you can rule out malaria. On the other hand, just because someone has a fever, it doesn't me they have malaria.
In other words, a fever for malaria and a down trending initial claims for a recovery are necessary but not sufficent factors.
Just circling fever and shouting malaria doesn't work, the same with intial claims. Circling the downturn in January, before money supply was growing for 6 months at double digit rates, and before the stock market turned would have been premature.