Initial jobless claims came in lower than expected in the latest week, falling by 16,000 in the week ending January 25 from the unrevised 223,000 level reported for the prior week. The January 25 week's level compares to the consensus of 224,000 in the Econoday survey of forecasters. The four-week moving average is down 1,000 to 212,500 in the January 25 week.

The unpredictable nature of the initial jobless claims continues. Seasonal factors had expected a decrease in unadjusted claims of 39,917 (-14 percent) from the previous week, but the actual decline was larger, -56,963 or -20 percent.

There was a significant decline in unadjusted first-time claims filed in California following a surge last week on the back of the devastating LA wildfires. There were also major declines in applications filed in Georgia, Illinois, Kentucky, Michigan, Missouri, New York, and Texas.

Insured unemployment decreased by 42,000 in the January 18 week to 1.858 million, from a upwardly revised 1.9 million in the prior week but continuing claims are 29,000 higher compared to the same week a year ago, pointing to a still-soft labor market. The four-week moving average is up 6,000 to 1.872 million, from an unrevised 1.866 million in the January 11 week. The insured rate of unemployment remained at 1.2 percent in the January 18 week, maintaining the pace set at the start of this year.

Despite the decline in initial claims numbers, the elevated level of continuing claims (which have not dropped below 1.8 million since June 2024), underlines the balance of risks to the Federal Reserve's dual mandate.

After a surprising increase of 6,000 to 223,000 last week from 217,000, forecasters see claims remaining elevated at 224,000. Is the labor market finally starting to crack?

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.