US: Jobless Claims

Thu Jan 29 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
New Claims - Level 300K 280K to 310K 265K 307K 308K
4-week Moving Average - Level 298.50K 306.50K 306.75K
New Claims - Change -43K -10K -9K

The Labor Department says initial claims data are often volatile coming off the Martin Luther King holiday (Monday, January 19) and they certainly were this year, down a shocking 43,000 to 265,000. This is the lowest reading since April 2000. The Labor Department says there are no special factors distorting the data and that no states were estimated in the week.

Claims have been all over the place so far this year which puts the emphasis on the 4-week average which is down 8,250 in the week to a 298,500 level that is actually higher, by nearly 10,000, than the month-ago comparison.

Continuing claims, which are reported with a 1-week lag, fell a very sizable 71,000 in the January 17 week to 2.385 million. The January 17 week was the survey week for the January employment report and a comparison with the survey week for the December employment report shows a 22,000 improvement. But a survey-week comparison of 4-week averages, at 2.439 million in the latest data, shows a 20,000 rise. These are mixed indications for the monthly employment report. The unemployment rate for insured workers is unchanged at a recovery low of 1.8 percent.

The big fall for initial claims in the latest report may have some impact on expectations for the monthly employment, though it was the prior week that was the survey-week comparison for initial claims and it showed slight erosion in the jobs market from December. Today's initial claims data are likely an outlier, a possibility that will likely limit their market impact.

Market Consensus Before Announcement
Initial jobless claims did fall 10,000 in the January 17 week but to a 307,000 level that was just outside the high end of the Econoday consensus range (289,000 to 305,000). The January 17 week was the sample week for the monthly employment report and a comparison with the December sample week shows a sizable 18,000 increase. The current 4-week average at 306,500 was up 6,500 from the prior week for the highest reading since way back in July. A sample-week to sample-week comparison for the average shows a 7,750 increase this month.

New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.

Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment
benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with
an income that gives a household spending power. Spending greases the wheels of the economy and keeps it
growing, so a stronger job market generates a healthier economy.

There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such
a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to
current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because
of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal
Reserve officials are always on the look-out for inflationary pressures.

By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation looks threatening, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.

Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.