Economic Indicators: Jobless Claims Report

The Initial Jobless Claims Report is a weekly release that shows the number of first-time (initial) filings for state jobless claims nationwide. The data is seasonally adjusted, as certain times of the year are known for above-average hiring for temporary work (harvesting, holidays). The report is issued by the U.S. Department of Labor.

The Initial Jobless Claims Report reflects the number of people who filed an initial claim for unemployment benefits during the prior week, so the report reflects growth or shrinkage in this number quickly.

Due to the short sample period, week-to-week results can be volatile, so reported results are most often headlined as a four-week moving average, so that each week's release is the average of the four prior jobless claims reports. The release will show which states have had the biggest changes in claims from the previous week; the revised edition shows up about a week later, at which time a full breakdown by state and U.S. territory is available.

What the Initial Jobless Claim Report means for investors

Many financial analysts incorporate estimates of the report into their market forecast. If a weekly release comes insignificantly different than consensus estimates this can move the markets higher or lower.

The Initial Jobless Claims Report gets a lot of press due to its simplicity and the theory that the healthier the job market, the healthier the economy: more people working means more disposable income, which leads to higher personal consumption and gross domestic product (GDP).

The fact that jobless claims are released weekly is both a blessing and a curse for investors; sometimes the markets will take a mid-month jobless claims report and react strongly to it, particularly if it shows a difference from the cumulative evidence of other recent indicators. For instance, if other indicators are showing a weakening economy, a surprise drop in jobless claims could slow down equity sellers and could actually lift stocks, even if only because there isn't any other more recent data to chew on.

A favorable Initial Jobless Claims Report can also get lost in the shuffle of a busy news day, and hardly be noticed by Wall Street at all. The biggest factor week to week is how unsure investors are about the future direction of the economy.

Strengths of the Initial Jobless Claims Report:

•          Weekly reporting provides for timely, almost real-time snapshots
•          As a tightly-presented release, investors can easily pick up the raw release and quickly apply the information to market decisions
•          Initial claims are provided gross and net of seasonal adjustments, and give a breakdown for every state's individual results
•          Some states' figures are shown along with a comment from that state's reporting agency regarding specific industries in which noteworthy activity is happening, such as "fewer layoffs in the industrial machinery industry."

Weaknesses:

• Summer and other seasonal employment tends to skew the results
• Highly volatile—revisions to advance report can be very big on a percentage basis
• Jobless claims in isolation tell little about the overall state of the economy
• No industry breakdowns are provided, just the national figure