US: Jobless Claims

Thu Feb 26 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
New Claims - Level 290K 279K to 300K 313K 283K 282K
New Claims - Change 31K -21K -22K
4-week Moving Average - Level 294.50K 283.25K 283.00K

Initial jobless claims surged unexpectedly in the February 21 week, up 31,000 to a 313,000 level that is far outside the Econoday consensus (279,000 to 300,000). The 4-week average is up 11,500 to 294,500 but is still more than 10,000 below a month ago in a comparison that, despite the latest week's surge, still points to improvement for the labor market.

Data on continuing claims, which are reported with a 1-week lag, are mixed. Continuing claims for the February 14 week fell 21,000 to 2.401 million but the 4-week average rose 2,000 to 2.399 million. The unemployment rate for insured workers is unchanged at a recovery low of 1.8 percent.

The impact of the disappointment for initial claims is likely to be mitigated by a couple of factors: the February 21 week was a week shortened by Presidents' Day, a factor that makes for outsized adjustments to the data, and the prior week, the February 14 week, not the latest week, was the sample week for the monthly employment report.

Market Consensus Before Announcement
Initial jobless claims fell a sizable 21,000 in the February 14 week to a slightly lower-than-expected 283,000, nearly reversing a 25,000 spike in the prior week. Volatility in weekly data puts importance on the 4-week average which was down for a 4th straight week, 6,500 lower to 283,250 for the lowest level since early November. Importantly, the February 14th week was the sample week for the monthly employment report and comparisons with the January sample week show significant improvement, down 26,000 for the level itself and down a very sizable 23,750 for the 4-week average.

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.