Washington, D.C., USA: The Labor Department released a report on Thursday showing a bigger than expected drop in first-time claims for U.S. unemployment benefits in the week ended January 5th – adding to the positive picture of the labor market painted by last week’s monthly jobs report.
The report said initial jobless claims fell to 216,000, a decrease of 17,000 from the previous week’s revised level of 233,000.
Economists had expected jobless claims to dip to 225,000 from the 231.000 originally reported for the previous week.
Meanwhile, the Labor Department said the less volatile four-week moving average rose to 221,750, an increase of 2,500 from the previous week’s revised average of 219,250.
The report also said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, slid by 28,000 to 1.722 million in the week ended December 29th.
The four-week moving average of continuing claims still climbed to 1,721,250, an increase of 15,250 from the previous week’s revised average of 1,706,000.
Last Friday, the Labor Department released a separate showing employment in the U.S. spiked by much more than anticipated in the month of December.
The Labor Department said non-farm payroll employment soared by 312,000 jobs in December after climbing by an upwardly revised 176,000 jobs in November.
Economists had expected employment to increase by about 177,000 jobs compared to the addition of 155,000 jobs originally reported for the previous month.
The report also said the unemployment rate rose to 3.9 percent in December from 3.7 percent in November, while economists had expected the unemployment rate to come in unchanged.
However, the unexpected uptick by the unemployment rate came as the labor force jumped by 419,000 people compared to a much more modest 142,000-person increase in the household survey measure of employment.
The Labor Department also said average hourly employee earnings climbed by 11 cents to $27.48 in December, reflecting a 3.2 percent increase compared to the same month a year ago.
The annual rate of growth in average hourly employee earnings in December accelerated from the 3.1 percent increase seen in November, reaching its highest level since April of 2009.
Why Markets Care About Unemployment Insurance Weekly Claims
Unemployment Insurance Weekly Claims – also called Jobless Claims or Initial Claims – measures the number of individuals who filed for unemployment insurance for the first time during the past week.
Unemployment Insurance Weekly Claims is the nation’s earliest economic data. The market impact fluctuates from week to week – there tends to be more focus on the release when traders need to diagnose recent developments, or when the reading is at extremes.
The usual effect is that if ‘Actual’ is less than ‘Forecast’, it is good for the dollar and vice versa.
Markets care because although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health since consumer spending is highly correlated with labor-market conditions. Unemployment is also a major consideration for those steering the country’s monetary policy.
An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility.
Continued Weeks Claimed
A person who has already filed an initial claim and who has experienced a week of unemployment then files a continued claim to claim benefits for that week of unemployment. Continued claims are also referred to as insured unemployment. The count of U.S. continued weeks claimed is also a good indicator of labor market conditions.
Continued claims reflect the current number of insured unemployed workers filing for UI benefits in the nation. While continued claims are not a leading indicator (they roughly coincide with economic cycles at their peaks and lag at cycle troughs), they provide confirming evidence of the direction of the U.S. economy
Seasonal Adjustments and Annual Revisions
Over the course of a year, the weekly changes in the levels of initial claims and continued claims undergo regularly occurring fluctuations. These fluctuations may result from seasonal changes in weather, major holidays, the opening and closing of schools, or other similar events. Because these seasonal events follow a more or less regular pattern each year, their influence on the level of a series can be tempered by adjusting for regular seasonal variation. These adjustments make trend and cycle developments easier to spot. At the beginning of each calendar year, the Bureau of Labor Statistics provides the Employment and Training Administration (ETA) with a set of seasonal factors to apply to the unadjusted data during that year. Concurrent with the implementation and release of the new seasonal factors, ETA incorporates revisions to the UI claims historical series caused by updates to the unadjusted data.