US: Jobless Claims

Thu May 17 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous
New Claims - Level 215K 208K to 230K 222K 211K
4-week Moving Average - Level 213.25K 216.00K
New Claims - Change 11K 0K

A strong May employment report is in the cards based on unemployment claims. Initial claims in the May 12 week, which is also the sample week of the monthly employment report, came in at 222,000 which is higher than expected and up 11,000 from the prior week but a comparison with the sample week of the April employment report shows an 11,000 drop. And the 4-week average, falling 2,750 to 213,250, is down a very sizable 18,250 against April's sample week. The current 4-week average is the lowest since 1969.

Continuing claims, where data lag by a week, fell a sizable 87,000 to 1.707 million in data for the May 5 week with this 4-week average down 40,000 to 1.774 million. Both readings are the lowest since 1973. The unemployment rate for insured workers is down 1 tenth to 1.2 percent.

Employers are holding onto their employees as never before in what is very convincing evidence that the labor market is at, or very near, full employment.

Market Consensus Before Announcement
Initial claims are expected to come in at 215,000 in the May 12 week which is also the sample week for the monthly employment report. This would be a 4,000 increase from 211,000 in the prior week but would still compare very favorably with 231,500 in the sample week for the April employment report. Low readings in this report are consistent with strong demand for labor.

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.