US DATA: California Claims Volatility Drop Casts Doubt On National Improvement

The latest weekly jobless claims report was more solid than expected on both the initial and continuing metrics, and despite some potential idiosyncratic factors it does nothing to dispel the perception that the labor market has stabilized at a moderately strong level.

• Initial claims in the Jan 25 week fell 16k to a 3-week low of 207k, defying forecasts of a 2k rise to 225k. This was the largest drop in SA initial claims in 6 weeks, and largely reverses the previous two weeks' uptick.
• Meanwhile continuing claims pulled back 42k to 1,858k, with the 42k drop the biggest in 4 weeks and largely reversing the previous week's 47k rise. As with initial claims, continuing numbers fell versus expectations for a rise (1,902k survey, 1,900k prior rev).
• There is some question as to whether the southern California fires in January are distorting the data: the state saw initial claims drop 13.5k, a little under one-quarter of the US total (all NSA). It was even more pronounced in continuing claims, with a drop of 43.8k, two-thirds of the US total (again, NSA). These came after a large rise in the prior week, which looks outside of seasonal norms (see chart below).
• As such we wouldn't read too much to the week-to-week movements, which look to have been exaggerated to the upside from California fire effects earlier in January, but are now reversing. But overall