Thursday, June 18, 2009

Jobless Claims

Released on 6/18/2009 8:30:00 AM For wk6/13, 2009
Prior Consensus Consensus Range Actual
4-week Moving Average - Level 621.75 K 615.75 K
New Claims - Level 601 K 610 K 590 K to 625 K 608 K

Unemployment claims are showing tangible but not dramatic improvement in the jobs market. First-time jobless claims, at 608,000 in the June 13 week, were in line with most expectations, up 3,000 from the prior week which was revised 4,000 higher to 605,000. But the four-week average fell 7,000 to 615,750 for its lowest level since the beginning of the year. A mid-month to mid-month comparison with May, which is useful to gauge change in the household survey of the monthly employment report, shows a 28,000 improvement in the week and a 14,000 improvement in the four-week average.

Continuing claims show special progress, down a sizable 148,000 to 6.687 million to end a very long streak of increases dating back to the very beginning of the year. Also improving was the unemployment rate for insured workers, down 1 tenth to 5.0 percent and offering a signal that the overall unemployment rate, at 9.4 percent, may also be coming down in what would be a major development for the economic outlook and global markets.

But one week's data is not a month of data, making for a very limited initial response though demand for Treasuries is slipping with demand for oil and other commodities on the rise. The results may give the stock market a slight lift and they are certain to spark fresh talk of green shoots.

Market Consensus Before Announcement
Initial jobless claims fell 24,000 in the June 6 week to 601,000. The improvement was clearly evident in the four-week average which fell 10,500 to 621,750 -- its lowest level since February. However, while job losses are slowing, the number of unemployed rose further in the latest week. Continuing claims for the May 30 week rose 59,000 to 6.816 million, another record high.

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 Investors 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.

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