Initial claims numbers rose a little more than expected last week (albeit one shortened by the New Years Day holiday), another sign that employment conditions have stabilized but at a tepid level given continuing claims crept back above 1.9 million for the second time in the past three weeks. The December jobs report will confirm how much conditions have stabilized, and how entrenched employers' 'no-hire, no-fire' approach has become.

Initial jobless claims came in about as expected, with the level reported in the holiday-shortened week ending January 3 up 8,000 from the revised 200,000 level reported for the prior week (previously 199,000). The January 3 week's level compares to the consensus of 205,000 in the Econoday survey of forecasters. The four-week moving average is down 7,250 to 211,750 in the January 3 week.

Seasonal factors had expected an increase in unadjusted claims of 17,786 (+6.6 percent) from the previous week, but instead there was a large increase of 29,677 (10.9 percent).

California (+4,673), Georgia (+5,530), Minnesota (+2,240), New York (+15,550), Oregon (+3,439), Texas (+5,039), and Wisconsin (+4,818) reported noticeable increases in unadjusted first-time claims, while Connecticut (-2,040), Illinois (-2,917), Missouri (-3,372), New Jersey (-4,997), and Ohio (-2,203) reported significant declines.

Insured unemployment was at 1.914 million in the December 27 week, with the prior week's level revised down to 1.858 million from 1.866 million. Continuing claims are higher by 43,000 vs. the same week a year ago, underlining what continues to be a stagnant labor market. The four-week moving average is up 21,000 to 1.893 million, from a downwardly revised 1.872 million in the December 20 week. The insured rate of unemployment remained at 1.2 percent in the December 27 week.

Claims seen at a still-low 205K after a surprising 16K drop to 199K in the previous holiday 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.