The Initial Jobless Claims indicator is a report that records how many people have applied for unemployment benefits in the United States, providing information on the state of the labor market of that country. This is a weekly published data, and provides information on how many people applied for unemployment benefits last week. Therefore, this report is also known as weekly jobless claims. The report of the Initial Jobless Claims is prepared by the Employment and Training Administration of the U.S. Department of Labor, and is published on Thursday of each week at 13:30 GMT, with data from the previous week.
Relevance of the indicatorThe number of applicants for weekly unemployment benefits can be used to take the pulse of the economy, and in this sense, is considered an economic indicator. If there is a significant increase in the number of applicants, this data could be pointing to a slowdown in economic growth and the rising of the unemployment. In the opposite case, when the number of applicants decreases significantly, can be a sign that the economy is experiencing an increasing in the pace of job creation, and therefore it is considered a good economic data. However, most economists and investors usually consider only the jobless claims data with an average of four weeks. The reason is that the weekly data can be volatile, and its interpretation could be misleading. In fact, minor fluctuations below thirty thousand claims (positive or negative) are not considered by most analysts.
Effects of the Initial Jobless Claims in the marketsWhen the Initial Jobless Claims reports very positive data, such as a significant reduction in the number of applicants for unemployment benefits, investors can anticipate that stock markets will go up because they anticipate an expansion of the economy.
On the bond market, the investor can foresee a scenario enormously negative if the indicator shows a reduction of applicants for unemployment benefits and strong job creation. Therefore, if the indicator shows that the economy is strengthening, demand and consumption will increase, which is a scenario that can cause an increase in prices in the country and therefore an increase in inflation. The result of economic growth and inflation will be an increase in interest rates in the short-medium term, and thus a reduction of the price of existing bonds in the market and an increase in the profitability of new bonds. The strength of a country’s economy will have an impact on the appreciation of its currency against other currencies. For this reason, the Forex market players tend to look at the data of Initial Jobless Claims towards their analyzes to assess the prospects of a currency against others. Considering the evolution of this figure and considering the four-week average, investors and analysts make their forecasts. In the case of the United States, a positive value of the Initial Jobless Claims may cause a rise of the dollar against other currencies in the short term, but a negative value can cause the opposite effect as investors may feel that this is a sign of economic weakness.