Initial claims dropped by more than expected in the week ended September 20, reaching 218,000, the lowest level in two months, following a 32,000 decline the previous week. Forecasters in an Econoday survey had anticipated 238,000, with the lowest estimate at 226,000.

With two weeks down a cumulative 46,000, offsetting the two previous weeks of a cumulative 35,000 increase, the four-week average came down to 237,500 in the September 20 week from 240,250 in the survey week.

The latest initial claims declines did little to change the picture of persistently high continuing claims, which edged down 2,000 to 1.926 million in the week ended September 13. Continuing claims have been above 1.9 million for 18 straight weeks. It's therefore unlikely that the decline over the past four weeks change the overall assessment by the Federal Reserve, which cut the fed funds target rate range by 25 basis points to a range of 4.00 to 4.25 percent a week ago, in light of the shift in the balance of risks in which downside risks to employment have risen.

Seasonal factors had expected a decrease in unadjusted claims of 3,477 (minus 1.8 percent) in teh week ended September 20 from the previous week, but instead there was a decline of 14,822 (minus 7.6 percent).

Claims are seen at 238K in the latest week versus 231K in the prior week. What a relief to see claims back around 240K after a short period around 260K.

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.