US: Jobless Claims

Thu Jul 16 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Claims - Level 282K 265K to 295K 281K 297K 296K
4-week Moving Average - Level 282.50K 279.50K 279.25K
New Claims - Change -15K 15K 14K

Auto retooling is clouding initial jobless claims data which fell 15,000 in the July 11 week to 281,000. But the 4-week average, inflated by a 14,000 spike in the prior week, rose 3,250 to a 282,500 level that's more than 5,000 above the month ago comparison. The rise in the average is not a positive indication for the July employment report.

But the latest on continuing claims, which are reported with a 1-week lag, are very favorable, down a very steep 112,000 to 2.215 million in the July 4 week which is a new recovery low. Nevertheless, the 4-week average, down 3,000 to 2.264 million, is trending slightly higher than the month-ago comparison. The unemployment rate for insured workers is down 1 tenth to a recovery low of 1.6 percent.

July, with its closings in the auto sector, is always a difficult month for claims data. Next week's report will be especially important as initial claims will cover the sample week for the monthly employment report.

Market Consensus Before Announcement
All Econoday forecasters see improvement for jobless claims with the consensus at 282,000 vs a surprisingly high 297,000 in the July 4 holiday shortened week. The high forecast, at 295,000, is below the prior week's level while the low forecast, at 265,000, would mark a return to one of the lowest levels of the recovery. A downward surprise would boost expectations for the July employment report while an upward surprise, one that would confound the forecasters, would sink expectations for the employment report.

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.