A Welcome Return to Traditional Economic Data

May 28, 2021 | Nick Scholte


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As new infections continue to decline, traditional economic measures come back into focus. This week a look at perhaps RBC Dominion Securities favourite indicator of recession - weekly jobless claims.

To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 1.7%; the U.S. Dow Jones Index up 0.9%; and the U.S. S&P 500 up 1.2%.

Quick primer before getting into the meat of this week’s update on weekly jobless claims. Weekly jobless claims are a measure of the number of people laid off in any given week. Workers are continually being laid off in a healthy economy for a variety of reasons. It should not be considered alarming in itself. At the same time, workers are being hired for a number of reasons. The difference between hiring and lay-offs results in the Monthly Employment figure I cite the first Friday of every month. As long as hiring exceeds lay-offs, the net jobs created will be positive. Ok, onto the discussion…

Prior to the sudden arrival of the pandemic in early 2020, the rapid consequences of which usurped the more traditional economic data I and RBC Dominion Securities track in our efforts to monitor the business cycle, one of the specific data points I repeatedly highlighted as a timely indicator of looming change in the macro-economic outlook was the trend in weekly jobless claims. When weekly jobless claims are declining and/or trending sideways, the macroeconomic outlook is almost always expansionary (the degree of expansion depending upon an array of other economic data). However, when the trend in weekly jobless claims decisively moves higher, RBC has identified such a change as perhaps the best indicator of looming recession amongst the myriad of indicators we track here at RBC.

So it is here that I will note that the current trend in weekly jobless claims is decisively lower (i.e. for the better). This trend can visually be seen here. Quite obviously there is the huge spike in early 2020 as the economy shut down. However, ever since the trend has been consistently trending down. Yesterday the weekly jobless claims number came in at 406,000. When I began my advisory career in the late 1990’s, weekly jobless claims measured with a 3 as the first digit (in the hundreds of thousands column) were typical. Over the past decade, it has been more typical to see a 2 as the first digit. Just prior to the arrival of the pandemic, some weekly claims numbers actually dipped below 200,000 (levels I never expected to see in my career). Well, claims figures are now knocking on the door of again posting a “3” as the first digit. It could happen as soon as next Thursday. While there is still quite some way to go to see claims dip into the 200,000 range, the point is that now, before the economy has fully re-opened, claims are arguably re-entering the historically normal range. This bodes well for a return to focus on traditional economic measures, and finally leaving the measure of “number of new cases” and “new deaths” in the rearview mirror. Quite apart from my own personal relief, I also professionally welcome this looming change.

So on that last note, I’ll merely observe that North American infection rates are in sharp and sustained decline. Vaccines are doing their job. And the economic outlook ahead continues to look strong.

That’s it for this week. All the best and remain safe,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
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