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  • KPB & Co Research

The US has been experiencing sustained positive economic growth over the last 10 years, as the economy recovered from the great recession of 2008. Since the Trump administration took office in January - 2017, the pace of growth has accelerated, partly due to the stimuli from tax incentives, continued low interest rates, and reduction in regulations. Beginning in Q4 of 2018, back to back increases in central bank policy rates and rising trade tensions were followed by a marked slowdown in economic growth. Today, the potential for the economy to go into a recession is a constant topic of discussions. As more negative economic data surface, the potential for a recession becomes more real. Recent Data on unemployment claims is not quite negative yet, as the number of claims is still at historical lows. On the other hand, the number of claims appear to hit a floor, which at several times in the past were followed by sharp reversal of a down trend.

According to the US Department of Labour, the seasonally adjusted initial unemployment claims came in at 216K for the week ending July 13, which is 8K higher than that of the previous week (previous week's level was revised down by 1,000 from 209,000 to 208,000). Seasonally unadjusted unemployment claims came in at 243.5K in the week ending July 13, representing an increase of 11.5K over the previous week. Of the total increase over the previous week, seasonal factors accounted for 2.2K. The number of unemployment claims was also 11.3K higher than the number recorded in the same period a year earlier.

Though the increase in the number of claims is indicative of slower economy, investors should be cautious as it is too early to judge whether the move upwards is sign of more bad news to come. First, the increase in the number of claims was anticipated by the market and is therefore priced-in. Second, there have been many "head fakes" in the past and this may be just another one of them. At the same time, the reductions in the number of jobless claims appeared to have hit a floor, and could swing upwards quickly. In the eve of the 2008 recession, jobless claims hit a floor of 300k but proceeded to rise quickly as the 2008 recession unfolded to 550K. Furthermore, the market appears to be more convinced than ever that a recession is on the way, as expectations of cut in rates have hit a multi-year high.

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