Initial jobless claims fell 5,000 in the August 31 week to a 227,000 level that compares favorably with recent results as well as Econoday's consensus for 232,000. The 4-week average is down nearly 2,000 to 230,000 for the lowest reading since early June.

Continuing claims in lagging data for the August 24 week are likewise lower, falling 22,000 to 1.838 million to trim this 4-week average to 1.853 million for the lowest reading since the July 13 week. The unemployment rate for insured workers remains at 1.2 percent which is where it's held since March last year.

These results are consistent with a solid showing for tomorrow's August employment report and may hint at stronger-than-expected results. Econoday's consensus for nonfarm payrolls is a moderate 160,000 gain with ADP's August results, released earlier this morning, at 99,000 in what would be a modest-to-moderate result for private payrolls.

Jobless claims appear to have settled near the 230,000 level consistent with tight labor conditions. Consensus for the August 31 week is 230,000 versus 231,000 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.