Jobless claims had been looking like they had ratcheted higher, that is until today's surprising 17,000 decline in the July 6 week to 222,000 which is the lowest level since late May. One week, however, is only one week as the 4-week average remains noticeably high, at 233,500 though down just more than 5,000 from the prior week.

Continuing claims in lagging data for the June 29 week fell 4,000 to 1,852 million with this 4-week average continuing to climb, up nearly 10,000 to 1.840 million for the highest level since early December 2021. Yet the unemployment rate for insured workers remains where it has been since March last year, at a very low 1.2 percent and consistent with strong demand for labor.

The combination of a less tight jobs market with a resumption of disinflation has pulled forward expectations for a Federal Reserve rate cut. Yet today's sharp drop in initial claims doesn't quite fit in with the first half of this proposition.

Jobless claims for the July 6 are expected to come in at 239,000 versus 238,000 in the prior week. Claims have been moving higher in recent weeks.

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.