FYI | Jun 25 2010
By Rudi Filapek-Vandyck
US data releases in June are not exactly supporting a return to increased risk appetite, and that is an understatement.
One of this week's disappointing releases proved to be the Initial Jobless Claims report. At face value, the result appeared slightly better than what economists had been expecting, but there was no inspiration whatsoever coming from it for US equities.
Investors need not seek further for an explanation of how and why, BTIG market strategists Mike O'Rourke has done the necessary historical research and mathematical calculations to provide the answers.
The bottom line, reports O'Rourke, is that 457,000 beating a 463,000 claims estimate is simply not enough to make a genuine difference. Without resumption of the downward trajectory, Non-Farm Payrolls and the US Unemployment Rate will not improve.
Going back over 40 years, the current levels of 450,000-475,000 on a 4 week moving average are consistent with adding nothing in Non-Farm Payrolls per month, reports O'Rourke, and still losing approximately 30,000 Private Sector Payrolls.
Even if the trend were to improve into the 425,000-450,000 range, this would still indicate flat Non-Farm Payrolls.
O'Rourke states the key threshold that needs to be broken is 425,000. At that point, approximately 100,000 Non-Farm Payrolls are being added, most of which are Private Sector. However, that rate is still not enough to bring the Unemployment Rate down.
O'Rourke says the true sweet spot arrives when initial claims drop below 375,000, because that is the point then the US economy will be adding 200,000 Non-Farm Payrolls, 170,000 of which are Private Sector. That is also the point where unemployment starts declining and the economic recovery gains real momentum.
