Perhaps The Business Cycle Is Dead – Initial Claims Approach Record

This week’s Initial Claims figure came in at 267K, an increase of 12K from the 255K of the prior week.

The sub-300K Initial Claims figure isn’t surprising lately.

In fact, Initial Claims have been below 300K for 21 consecutive weeks.

Business Cycle – Looking at Times When Initial Claims Stayed Below 300K

The incredible amount of time Initial Claims have been below 300K brings the question – How does this performance compare to past experiences of Initial Claims strength?

Here’s a look.

The table captures instances when Initial Claims stayed below 300K.

The rows represent the week when the sub-300K cycle started.  The columns capture the number of weeks Claims claims spent below 300K.

Unsurprisingly, there are lots of instances when Initial Claims spent only 1 week below 300K before jumping right back above 300K.

This occurred in 1993, 1998, some of the 1999 weeks, and so forth.

Of course, although one-and-done weeks are the most common, there’s lots of cycles that lasted five or six weeks below the 300K mark.

These weeks include June 1999, October 1999, and a very long period of 21 weeks that began in February 2000, lasting until July 2000.  The NASDAQ (and overall technology sector) started collapsing a few months before and continued through this period of Initial Claims strength.

The obvious question when looking thinking about the Initial Claims picture is whether the business cycle is dead, just taking a very long hibernation, or we’re at a peak?

Initial Claims and the S&P 500

In connecting the Initial Claims picture with equity performance, here’s a look at the performance of the S&P 500 against Initial Claims (both in natural log form).

Overall, the current difference (again, in log form) is 4.879, an all-time high.

The current difference is much higher than the previous April 2000 and May 2007 peaks of 5.232 and 5.304, respectively.  The Initial Claims-S&P 500 difference has been above the previous cycles’ peaks since July 2013, just surpassing the two year mark.

What’s It Mean?

The amazing amount of time Initial Claims have been below 300K and the length of time and magnitude of the difference between Initial Claims and the S&P 500 poses the question – Perhaps the business cycle is dead?

Perhaps.  Or just taking a very long hibernation, partially brought on by an incredibly loose Federal Reserve.

Perhaps right now is the peak.  Although, it’s hard to be short in an era where governments are so active (the Chinese government’s stock buying, the European Union’s and Bank of Japan’s prolonged money printing operations, or just a U.S. Federal Reserve that acts surprisingly more like a cheerleader than a central bank).

Market professionals seem to think it’s a long hibernation, while retail investors, judged by equity market flows, appear to think it’s a peak.  It’s probably more of a question of who wins rather than who’s right.

Business Cycle: Conclusion

Initial Claims are on an amazing run.

If Claims keep this up for one more week, Claims will break the record of consecutive weeks below 300K.

The prior record of 21 consecutive weeks began in February 2000, a few months before the bursting of the technology bubble.

The incredible strength in Initial Claims coincides with strength in the S&P 500.  The difference between the two is at an all-time high.

Just amazing.  Perhaps the business cycle really is dead, or just hibernating for a really long time.