Initial claims numbers declined for the sixth consecutive week, however, the persistently high level of continuing claims (above 1.9 million for nine straight week) provide additional proof for Fed officials such as Christopher Waller who believe the central bank should cut interest rates sooner than later.

Initial jobless claims came in below expectations, with the level reported in the week ending July 19 down 4,000 from the unrevised 221,000 level reported for the prior week. The July 19 week's level compares to the consensus of 225,000 in the Econoday survey of forecasters. The four-week moving average is down 5,000 to 224,500 in the July 19 week.

Seasonal factors had expected a decrease in unadjusted claims of 41,275 (-15.8 percent) from the previous week, but instead there was a slightly larger drop of 45,319 (-17.4 percent).

Kentucky (+4,902) was the only state to report a noticeable increase in unadjusted first-time claims. California (-4,234), Michigan (-4,055), Missouri (-2,184), New Jersey (-2,797), New York (-12,303), and Pennsylvania (-3,423) all had significant declines.

Insured unemployment was up by 4,000 to 1.955 million in the July 12 week from the downwardly revised 1.951 million in the prior week. Continuing claims are higher by 102,000 compared to the same week a year ago, a sign of entrenched labor market's softness.

The four-week moving average is down by 2,250 to 1.954 million, from a revised 1.956 million in the July 5 week. The insured rate of unemployment remained at 1.3 percent in the July 12 week from the prior week.

Claims are seen rising to 225K in the latest week after an unexpected drop to 221K last 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.