How to interpret… US initial jobless claims

This is an extremely closely watched indicator, and the fact that numbers are released weekly (every Thursday at 08:30 New York time) means that investors have always got an important data release to look forward to each week, even if not much else is going on. The release gives us the number of new claims for unemployment benefits across the US, in the prior week ending Saturday. Generally, fewer jobless claims is a good thing, while more is bad. The data release is considered to be a coincident indicator of economic activity most of the time, and because of the weekly frequency, it is important to look for persistent multi-week patterns, rather than drawing conclusions from one-off spikes in the data. A persistent trend lower from relatively high levels is almost certainly good for stocks and is probably bad for bonds if it is driven by genuine economic growth. If it driven by ample liquidity support from the central bank, it may be good for bonds too. However, if the number of jobless claims falls too low, that might suggest that the ‘natural’ rate of unemployment has been surpassed. In this case, and as with many other activity indicators, it is important to look out for signs of inflationary pressures and overheating of the economy, suggesting that the central bank might intervene to raise interest rates and trigger a recession. This makes it a classic ‘goldilocks’ indicator – too high means we’re already in a full-blown recession, while too low means that the central bank might need to trigger a recession. A stable equilibrium level that is low but not falling too much is good for risk assets.