US: Jobless Claims

January 5, 2017 07:30 CST

Consensus Consensus Range Actual Previous Revised
New Claims - Level 260K 255K to 262K 235K 265K 263K
4-week Moving Average - Level 256.75K 263.00K 262.50K
New Claims - Change -28K -10K -12K

Seven states had to be estimated and holiday weeks are always difficult to adjust for, but initial claims in the December 31 week are strikingly low, down 28,000 to 235,000. The drop pulls the 4-week average down 5,750 to a 256,750 level that is still slightly above, not below, the month-ago trend.

Continuing claims are steady but do show a slight increase, up 16,000 in lagging data for the December 24 week to 2.112 million. This 4-week average is up a noticeable 26,000 to 2.067 million which is roughly 10,000 higher than the month-ago trend. Despite the increases in continuing claims, the unemployment rate for insured workers is unchanged at a very low 1.5 percent.

Today's results are roughly consistent with strength for tomorrow's employment report where however the comparisons of the December 17 week to the November 12 week, which were the weeks that the monthly employment reports were sampled, are not favorable (data previously reported). The holidays often make for volatility in this report though initial claims in the December 24 week, when 10 states had to be estimated, were not significantly revised, down only 2,000 from the initial reading to 263,000.

Market Consensus Before Announcement
Though still near record lows, initial claims trended higher in December as did continuing claims. Recent readings, consistent with holiday periods, have been volatile though forecasters see only modest change for initial claims in the December 31 week, down 5,000 to 260,000. Volatility aside, claims data remain at or near historic lows and consistent with a strong labor market.

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 itgrowing, 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.