Here’s Ben Stein in his best monotone explaining how reflexes work: “Polysynaptic spinal reflex arcs and brainstem-mediated neural pathways execute rapid involuntary motor responses that bypass cerebral interpretation to protect peripheral tissue from acute trauma….”
We’ve all done it. You accidentally brush your arm against a scorching pan, and before your brain even registers pain, your arm automatically jerks backward. That split-second reaction stems from nerve sensors in your skin sending an emergency signal to your spinal cord, which commands your arm muscles to pull away. That same loop fires off when you’re out for a leisurely bike ride, and a tiny gnat flies into your eye (as it always does!). Sensory nerves detect the oncoming intruder and trigger a blink in milliseconds to shield your cornea. If you slip on wet pavement, your inner ear’s balance center detects the sudden drop and snaps your core muscles into action, forcing your arms to thrust out and stabilize your body before you hit the ground. THIS is the beauty of reflexes.
Every Thursday prompts a reflex among Street traders with the arrival of the weekly jobless claims report. Initial jobless claims’ standing is seared into their collective psyches given their weighty historical influence across multiple asset classes. The surprising decline to 187,000 in the week ended July 18th left this leading indicator at its lowest level since 1969. The reflex is as bullish, or bearish, depending on your positioning, as it gets.
The Treasury market’s linkage to seasonally adjusted initial claims is unequivocal as seen in today’s first quad chart. Shifting claims forward one week (aqua line) and inverting the U.S. 10-year yield (fuchsia line) shows the former’s more volatile weekly movements draw the latter’s path. To be sure, Brent crude had pushed through $100 per barrel ahead of yesterday’s 8:30 release. Nevertheless, claims piled onto the momentum driving yields to an intraday high of 4.71%. From a purely technical perspective, history runs counter to the claims’ momentum. The 187,000-level landed in the 1st percentile. That means 99% of time over the 3,107-week history, initial claims registered a higher reading. Put in simple terms, next week’s move should more likely be up than down.
Because weekly seasonally adjusted data are derived via imputation, viewing claims on a not seasonally adjusted and year-over-year (YoY) basis offers the cleanest assessment. Since mid-February, both initial and continuing claims have seen consecutive and simultaneous YoY declines (green and orange lines). On the surface, these trends suggest limited concerns on the jobs front. Regular readers appreciate our affinity for the Google Trends’ series: “file unemployment” search interest. We’ve documented the recent divergence for the weekly gauge relative to continuing claims in previous commentaries. But just like that, the 7.7% YoY drop in the latest corresponding claims’ week (purple line), the first such contraction since April 2025, bolstered claims’ signal.
Trade the Narrative. Own the Truth. We remind you that continuing claims covers just one-quarter of the total unemployed. According to The Century Foundation’s Unemployment Insurance Data Dashboard, 28 states fall under the 25% total U.S. threshold. And six of them – Texas (24%), Ohio (18%), Georgia (15%), North Carolina (13%) and Florida (8%) – are some of the largest states in the nation. On the flip side, the top six states where the jobless benefits’ umbrella cover the most are Minnesota (55%), New Jersey (45%), Montana (42%), Rhode Island (41%), Connecticut (40%) and the District of Columbia (40%).
Initial claims may be partying like it’s 1969, but not everything adds up. Take the other disconnect pointed out by QI friend and Sakonnet Research’s Adam Josephson. In his Thursday commentary, Josephson explained: “As the S&P 500 goes ever higher, many large consumer companies’ fortunes continue to get worse; that trend has never been more evident than in 2Q.” Albertsons’ and Tractor Supply’s weak sales were called out: “Rarely do these companies post comparable sales declines, yet both did so in 2Q.” Albertsons identical sales excluding fuel fell 0.8% YoY (lime line), the first drop in six years, while Tractor Supply posted a 1.5% YoY plunge (red line), the worst showing since 2023’s fourth quarter.
Moreover, Josephson noted, “Albertsons said that ‘core grocery faced increasing pressure from softer industry unit trends and a more cautious consumer,’ which prompted the company to cut its full-year sales guidance. And Tractor Supply noted weakness in sales of big-ticket items as well as lower spending in discretionary categories, to the point that the company cut its full-year sales guidance and withdrew the long-term guidance it provided in December 2024.” As if that wasn’t enough, Nestle’s volumes turned negative in 2026’s second quarter driven by staples like coffee and pet products and added to the “chorus of consumer companies talking about retailer inventory reductions,” that speaks to a defensive stance.
The Century Foundation’s dashboard also includes other metrics that bridge the gap between multi-decade lows in initial claims and volume sales declines at consumer product companies. Enter the denial rate — unemployment insurance denials as a percent of all claims. The first thing that jumps off the page is that denials tend to decline in recession as more jobless benefit coverage is demanded, i.e., continuing claims rise to support those dislocated from their positions (dark blue line). A clear inverse relationship was manifest in the Great Recession and again during the COVID shutdown.
We must add that during and after the pandemic, fraudulent jobless claims filings were so rife that certain locales, notably California and the District of Columbia, stopped reporting weekly claims to the U.S. Department of Labor until which time they could clean the data. Subsequently, the national denial rate spiked to 48% in 2022. What’s unexpected? It remained at or above 40% through last year (yellow bars). Fraud or not, structurally higher denials mean reported initial and continuing claims are lower than otherwise would be the case and understating the true unemployment situation. While it does nothing to curve reflexiveness, that truth helps square things with the softness in consumer product company sales.