Initial jobless claims came in lower than expected in the latest week, down 10,000 in the holiday-impacted week ending January 4 from the unrevised 211,000 level reported for the prior week. The January 4 week's level compares to the consensus of 216,000 in the Econoday survey of forecasters. The four-week moving average is down 10,250 to 213,000 in the January 4 week, after an unrevised 223,250 in the prior week.

Initial claims data continue to be particularly volatile around the holidays due to seasonal adjustment. Seasonal factors had expected an increase in unadjusted claims of 35,647 (+12.6 percent) from the previous week, and the actual rise was much less, +21,253 or +7.5 percent.

There was a noticeable drop in first-time claims filed in Connecticut, Illinois, Iowa, Massachusetts, Michigan, New Jersey, and Ohio. There was a major post-holiday jump in applications in Georgia, New York, Oregon, and Texas.

Insured unemployment increased by 33,000 in the December 28 week to 1.87 million, from a downwardly revised 1.83 million in the prior week and now continuing claims are up by 108,000 from the same week a year ago, another reminder of the pockets of softness in the labor market. The four-week moving average is down 3,000 to 1.865 million, from a downwardly revised 1.868 million in the December 21 week. The insured rate of unemployment remained at 1.2 percent in the December 28 week, continuing the trend seen for most of 2024.

Setting aside the noise in the initial claims numbers, the continuing claims data once again shows a lukewarm labor market in which a higher number compared to a year ago are staying unemployed for longer as the demand for workers slowed down significantly.

Claims are expected to rise to 216,000 after last week's unexpected decline to 211,000 from 220,000 the week before.

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.