Jobless claims unexpectedly soared in the week ended June 3, rising 28,000 to 261,000, far above Econoday's highest forecast of 241,000. This is the highest level since October 30, 2021, indicating labor market tightness might be easing.

The 4-week average moved up 7,500 to 237,250 from 229,750, its highest level since the end of April.

Continuing claims in data for the May 27 week fell 37,000 to 1.757 million, although the unemployment rate for insured workers remained stable at 1.2 percent. It remains to be seen how continuing claims will fare in the June 3 week in light of the weakness in initial claims.

With today's jobless claims report, Econoday Consensus Divergence Index moved to negative territory, at minus 15, consistent with a minor underperformance of the economy and limited easing risk.

Jobless claims for the June 3 week are expected to rise to 235,500 versus 232,000 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.