Initial jobless claims came in lower than expected in the latest week, down 9,000 in the holiday-impacted week ending December 28 from the revised 220,000 level reported for the prior week. The December 28 week's level came in below the consensus of 225,000 in the Econoday survey of forecasters. The four-week moving average is down 3,500 to 223,250 in the December 28 week, after a revised 226,750 in the prior week.

Claims are particularly volatile around the holidays due to seasonal adjustment. Seasonal factors had expected an increase in unadjusted claims of 20,249 (+7.3 percent) from the previous week, and the actual rise was significantly less, +7,441 or +2.7 percent.

There was a noticeable drop in first-time claims filed in California and Texas. There was a major jump in applications in Connecticut, Iowa, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, and Wisconsin.

Insured unemployment declined by 52,000 in the December 21 week to 1.84 million, from a downwardly revised 1.896 million in the prior week but continuing claims are still up by 29,000 from the same week a year ago, again underscoring the pockets of softness in the labor market. The four-week moving average is down 6,750 to 1.871 million, after an upwardly revised 1.878 million in the December 14 week. The insured rate of unemployment returns to 1.2 percent in the December 21 week from 1.3 percent in the prior week.

The jobless claims data continues to show a stagnating labor market in which a higher number compared to a year ago are staying unemployed for longer as the demand for workers has slowed down significantly.

Forecasters expect claims to bounce up to 225,000 in the latest week, closer to the four-week moving average of 226,500, after declining unexpectedly to 219,000 last week from 220,000 in the prior week. The series tends to show volatility around holidays so take the forecast with a grain of salt.

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.