Jobless claims fell sharply in the December 9 week, down 19,000 to a much lower-than-expected 202,000 for the lowest level since mid-October. The 4-week average at 213,250 is at its lowest level since early November.

Yet continuing claims continue to trend higher, up 20,000 in the December 2 week to 1.876 million with this 4-week average up slightly to 1.875 million for the highest level in two years. The unemployment rate for insured workers is up 1 tenth at 1.3 percent, still low but matching recent highs.

More important than continuing claims, however, is the low 200,000 level for initial claims which compares with 250,000 levels as recently as mid-year. This result together with this morning's stronger-than-expected retail sales report lift the Relative Performance Index to plus 22 to indicate that US economic data are outperforming Econoday's consensus forecasts by the greatest degree since early November.

Jobless claims for the December 9 week are expected to come in at 223,000 versus an as-expected 220,000 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.