Initial claims numbers dropped by more than expected this week but the persistently elevated continuing claims (above 1.9 million for 17 straight weeks) supports the Federal Reserve's assessment of heightened downside risks to employment.

Initial jobless claims came in lower than expected, with the level reported in the week ending September 13 down 33,000 from the revised 264,000 level reported for the prior week (previously 263,000). The September 13 week's level compares to the consensus of 246,000 in the Econoday survey of forecasters. The four-week moving average is down 750 to 240,000 in the September 6 week.

Seasonal factors had expected an increase in unadjusted claims of 17,401 (+8.5 percent) from the previous week, but instead there was a decline of 10,384 (-5.1 percent).

No states reported noticeable increases in unadjusted first-time claims, while Connecticut (-4,389), Michigan (-3,956) and Texas (-5,012) reported significant declines.

Insured unemployment was at 1.920 million in the September 6 week, with the prior week's level revised to 1.927 million from 1.939 million. Continuing claims are higher by 93,000 vs. the same week a year ago, underlining the labor market weakness. The four-week moving average is down 10,250 to 1.933 million, from a downwardly revised 1.943 million in the August 30 week. The insured rate of unemployment remained at 1.3 percent in the September 6 week.

Claims are expected to retreat to 246K after a surprising 27K leap to 263K in the latest week. The 4-week moving average rose to 241K 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.