Jobless Claims

Jobless claims are a statistic reported weekly by the U.S. Department of Labor that counts people filing to receive unemployment insurance benefits. There are two categories of jobless claims – initial, which comprises people filing for the first time, and continuing, which consists of unemployed people who have been receiving unemployment benefits for a while. Jobless claims are an important leading indicator on the state of the employment situation and the health of the economy. Average weekly initial jobless claims are one of the 10 components of the Conference Board Leading Economic Index.

The nation's jobless claims is an extremely important indicator for a macroeconomic analysis. The monthly Bureau of Labor Statistics' "Employment Report" tracks how many new people have filed for unemployment benefits in the previous week. It is a good gauge of the U.S. job market. For instance, when more people file for unemployment benefits, fewer people have jobs, and vice versa. Investors can use this report to gather pertinent information about the economy, but it's a very volatile data, so the moving four-week average of jobless claims is monitored. The report is released at 8:30 a.m. ET on Thursdays and can be a market moving event.

Initial jobless claims measure emerging unemployment, and it is released after one week, but continued claims data measure the number of persons claiming unemployment benefits, and it is released one week later than the initial claims, that's the reason initial claims have a higher impact in the financial markets.

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).

Sometimes markets will react strongly to a mid-month jobless claims report, 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. The biggest factor week to week is how unsure investors are about the future direction of the economy.