US: Jobless Claims

Thu Jan 18 07:30:00 CST 2018

Consensus Consensus Range Actual Previous
New Claims - Level 250K 239K to 265K 220K 261K
4-week Moving Average - Level 244.50K 250.75K
New Claims - Change -41K 11K

A rash of estimates in the January 13 week clouds an unusually steep decline in initial jobless claims which fell 41,000 to 220,000 for the lowest showing in 45 years. But six states and two territories had to be estimated including California, where claims are up 12,000, and once again Puerto Rico where claims rose more than 2,000 to 4,267 in a reminder that Hurricane Maria's impact back in September is still disrupting the territory's labor department.

The January 13 week is also the sample week for the monthly employment report and the plunge, on its face, would point to a sizable increase in payroll growth and a further drop in the unemployment rate. Yet the unusual number of estimates will likely have forecasters putting this report to the side.

The 4-week average of course is less wild, down 6,250 to 244,500 which, in an offset to the week's headline plunge, is up 15,000 from the sample week of the December employment report. This is a negative indication for the coming report. Continuing claims are mixed, up a sizable 76,000 to 1.952 million in lagging data for the January 6 week but steady at 1.920 million for the 4-week average.

The estimates aside, the drop in the latest claims does speak to strength in the labor market and is underscored once again by how low the unemployment rate is for insured workers, holding steady in the week at 1.4 percent.

Market Consensus Before Announcement
Initial claims are expected to come in at 250,000 in the January 13 week compared to 261,000 in the January 6 week which was unusually high and which hinted at a possible rise in layoffs. The January 13 week is also the sample week for the January employment report which, together with the weakness in the January 6 week, will focus strong attention on this 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 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.