Initial jobless were down for the third consecutive week although they declined at a slower pace. Claims fell 4,000 to a below-expected 228,000 level in the week ended August 26, the lowest in a month. The previous week was revised up 2,000 to 232,000.

The last three weeks of initial claims declines totalled 22,000, virtually offsetting the 23,000 increase in the August 5 week. The four-week average was little changed at 237,500 from an upwardly revised 237,250 the previous week.

Insured unemployment claims rebounded 28,000 to 1.725 million in the week ended August 19, after falling 14,000 the previous week. The insured rate of unemployment edged back up to 1.2 percent from 1.1 percent.

Jobless claims for the August 31 week are expected to come in at 238,000 versus 230,000 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.