US: Jobless Claims

Thu Jul 09 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Claims - Level 276K 260K to 290K 297K 281K 282K
4-week Moving Average - Level 279.50K 274.75K 275.00K
New Claims - Change 15K 10K 11K

Claims data have been remarkably stable at very low levels since March. But now initial claims are up 15,000 to 297,0000 for what was however a shortened July 4 holiday week. Shortened weeks are difficult to adjust and often produce volatile readings that are smoothed out in subsequent weeks. The 4-week average helps limit the effect of any one week and, at 279,500, is only fractionally above the month-ago comparison which is a reassuring indication for the labor market.

Continuing claims, up 69,000 to 2.334 million, also rose sharply which are for lagging data in the June 27 week. The 4-week average is up 15,000 to 2.268 million while the unemployment rate for insured workers is unchanged at 1.7 percent.

The shortened week aside, an important special factor will soon be at play in the claims data and that's auto retooling which shuts down parts of the auto sector in rolling layoffs centered in July. And it's possible that retooling is behind some of the pressure in the latest data. As far as today's report goes, it's probably an outlier but if these results are repeated this time next week, the outlook for the July employment report could definitely turn lower.

Market Consensus Before Announcement
Jobless claims are at rock bottom and are having a tough time moving lower. Low levels of claims have been offering leading indications for the decline underway in the unemployment rate. Initial claims inched higher in the prior week to 281,000 and are expected to inch back lower to 276,000.

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 smooths 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.