Consensus Notes Initial jobless claims fell 12,000 in the November 7 week to a level of 502,000. The four-week average showed the progress that's underway, down 4,500 to 519,750 for the lowest level since last November. Continuing claims extended their long downward trend, falling a very large 139,000 to 5.631 million. Though some of this improvement may reflect new hiring, much of it unfortunately reflects the expiration of benefits. The number receiving extended benefits fell 28,243 to a level of 523,061, while those receiving emergency compensation rose more than 20,000 to 3.52 million.
Highlights
Initial jobless claims didn't break through 500,000 but the report is still favorable. Initial claims were unchanged in the Nov. 14 week at 505,000 (prior week revised 3,000 higher). The four-week average fell 6,500 to 514,000, down for a convincing 11th straight week. Continuing claims, down 39,000 to 5.611 million in the Nov. 7 week, extended what is an even longer run. The expiration of benefits, however, cloud the significance of this reading. Benefits were extended to more than 17,000 to 540,000, with 3.6 million receiving emergency compensation, up 100,000 (both Oct. 31 week). The unemployment rate for insured employees is unchanged at 4.3 percent. This rate has been coming down, in contrast to the overall unemployment which of course is now in double digits at 10.2 percent. Commodities and stocks moved higher in reaction to the report, one which will boost confidence that the layoff cycle, that is payroll contraction, is in fact winding down.
Definition 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 smoothes out weekly volatility.
Why Investor's Care 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 threatens, 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.
Source Employment and Training Administration, U.S. Department of Labor.