US: Jobless Claims

Thu Jul 23 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Claims - Level 279K 275K to 300K 255K 281K 281K
4-week Moving Average - Level 278.50K 282.50K 282.50K
New Claims - Change -26K -15K -15K

Auto retooling, and related temporary layoffs, is always a major wildcard for jobless claims in July and are likely at play in a startling 26,000 fall in initial claims in the July 18 week to a 42-year low of 255,000. A look at the 4-week average, which helps smooth out volatility, is less startling, down 4,000 to a 278,500 level that is little changed from the month-ago comparison.

Continuing data, where data lag by a week, also fell, down 9,000 to a new multi-year low of 2.207 million with the 4-week average down 10,000 to a 2.254 million level that is also little changed from a month ago. The unemployment rate for insured workers is steady at a very low 1.6 percent.

This report will raise talk of an upside surprise for the monthly employment for July where the sample week is the same as that for the latest initial claims data. Nevertheless, jobless claims data are hard to read at this time of year and there's no guarantee of similar strength for the monthly report.

Market Consensus Before Announcement
Summer auto retooling always makes jobless claims hard to read during July as temporary layoffs in the sector are unpredictable and difficult to adjust. Forecasters see little change in the July 18 week, at 279,000 for initial claims vs 281,000 in the prior week. Note that the latest report will be especially important as it covers the sample week of the monthly 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.