Initial jobless claims fell more than expected in the week ended May 13, reaching 242,000 as a 22,000 decline undid the previous week's increase of the same amplitude. Econoday's consensus expectation was 255,000, with the smallest forecast at 250,000.

The decrease brought the four-week average down 1,000 to 244,250 from the previous week's unrevised level, indicating ongoing tightness in the labor market.

Insured jobless claims came down 8,000 to 1.799 million in the May 6 week, the lowest level since the week ended March 4. The four-week moving average decreased to 1.813 million from 1.828 million. The insured rate of unemployment remained at 1.2 percent for the third consecutive week.

Jobless claims for the May 13 week are expected to fall back to 255,000 after rising a steep 22,000 to 264,000 in the prior week.

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.