Jobless Claims

8(a) Firm

What are jobless claims?

Unemployment claims are a statistic reported weekly by the United States Department of Labor which counts people filing for unemployment insurance benefits. There are two categories of unemployment claims: initial claims, which include first-time claimants, and continuing claims, which consist of the unemployed who have been receiving unemployment benefits for some time. Unemployment claims are an important leading indicator of the state of employment and the health of the economy.

Key points to remember

  • Unemployment claims are simply a measure of the number of people unemployed at any given time.
  • Unemployment claims are presented in two sections: initial unemployment claims, which represent new claimants, and continuing unemployment claims, which are people who continue to receive benefits.
  • When an increasing number of people wanting to work cannot find work, it is generally a bad sign for the economy.

Understanding jobless claims

The nation’s jobless claims are an extremely important indicator for macroeconomic analysis. The Bureau of Labor Statistics’ monthly employment report reports the number of new people who filed for unemployment benefits the previous week. It is a good indicator of the American labor market. For example, when more people apply for unemployment benefits, it usually means that fewer people are employed and vice versa. Investors can use this report to form an opinion on economic performance, but it is very volatile data on a weekly basis. Often, the four-week moving average of unemployment claims is monitored rather than the weekly figure. The report is released at 8:30 am ET on Thursdays and can be a touching market event.

How jobless claims affect the market

As mentioned, initial jobless claims measure emerging unemployment and continuous claims data measure the number of people still claiming unemployment benefits. Data on ongoing claims is released a week later than the original claims. For this reason, initial receivables generally have a greater impact on the financial markets.

Many financial analysts incorporate report estimates into their market forecasts. If a weekly publication on applications for employment benefits differs insignificantly from the consensus estimates, this can cause markets to go up or down. Generally, the movement is the reverse of the relationship. If initial jobless claims decline, the market will often recover on the upside. If initial jobless claims rise, the market could collapse.

The initial jobless claims report received a lot of press because of its simplicity and the basic assumption that the healthier the job market, the healthier the economy. In other words, more people working means more disposable income in the economy, which leads to an increase in personal consumption and in gross domestic product (GDP).

Why jobless claims are important to investors

Sometimes markets will react strongly to a jobless claims report in the middle of the month, particularly if it shows a difference from cumulative evidence from other recent indicators. For example, if other indicators point to a weakening economy, a surprise drop in job demand could slow sellers of stocks and could actually increase stocks. Sometimes this happens simply because there is no other recent data to chew on at the time. An initial favorable report on job applications could also get lost in the shake-up of a busy news day and go unnoticed by Wall Street.

Unemployment claims are also used as inputs for the creation of models and indicators. For example, initial weekly average weekly jobless claims are one of the 10 components of the Conference Board’s composite index of leading indicators.

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