Weekly Jobless Claims

Definition

This is the average Weekly Initial Claims for Unemployment Insurance, which will include any notice of unemployment filed to request a determination of entitlement to and eligibility for compensation, or to begin subsequent period of eligibility within a benefit year or period as long as the individual remains eligible.

How important is it?

The importance of this indicator is relatively medium to high depending on the latest trends on the economy. Its impact can be very high at a time when the economy is perceived to be headed for a turning point to the positive or the negative. Although the weekly claims could be influenced by, several factors such as bad weather or temporary shut down of companies. It is still a major watch out point to many investors simply because it is released on a weekly basis. They know that they can use its movement to predict the likely trend of events to come as opposed to waiting until the end of the month or quarter to get real statistics that could shape the investment strategies in a big way. The weekly claims can be used to quickly gauge the overall strength of the economy especially for persons who can be able to accurately judge the undercurrents beyond the numbers of the weekly unemployment claims. It is however important to look at the average four weeks outlook to get a more accurate measure of the trend.

Computation

These weekly jobless claims reports are an indicator that outlines the number of U.S workers who are receiving unemployment benefit within every working week. The data is usually compiled by collecting specific records including the initial claims, the four week moving average of initial claims, the insured unemployment who are on a recurring benefit and the jobless rate. All this information is derived from the Unemployment insurance weekly claims report. This should not be mistaken with the jobless claims.

The report is produced on a weekly basis from the U.S department of labor for the Unemployment benefit program. This program was initiated as far back as 1935 during the Great depression as a measure towards assisting the massive lay off workers in getting their basic needs during the hard economic time to cushion them against the impact of the recession.

The insured unemployment rate or jobless rate is a calculated by dividing the number of insured unemployed by the number of employees that are considered covered or eligible for unemployment insurance. Covered employees represent those working as well as those receiving unemployment benefits. The insured unemployment data and the insured unemployment rate are reported a week behind the initial claims numbers.

The number of weeks a claimant can receive benefits varies by state. In general, the recipient can receive benefits for 26 weeks, with extended benefits occasionally granted potentially lasting another 13 to 20 weeks depending on other prevailing factors. According to the Department of Labor, In general, the Federal-State Unemployment Insurance program provides benefits to eligible workers who are unemployed through no fault of their own as may be determined by the State law, and meet other eligibility requirements of State law. Persons being sacked or opting to quite employment out of their own volition are not thus considered eligible for unemployment benefit.

Impact on forex

The degree to which the number of initial claims meets expectations is typically one of the most influential aspects of the report. In addition, the market impact can also be affected by a meaningful trend change in the four-week moving average, insured unemployment or the insured unemployment rate. What is important to remember is that the direction of these four statistics has the same economic meaning: higher number of claims will reflect weakness in the economic trend while low number of claims is a good pointer to strength in the economy. The relationship is relatively an inverse one. In this order, the value of the currency will equally take a similar trend. If the claims are low, the currency strengthens due to high productions and increased money activity if the number of claims are persistently high, it means there is very low production going on and therefore the cash flow is likely to reduce. This trend will weaken the value of the local currency, as there will automatically be a decline in foreign exchange trading due to lack of any commodities to sale in exchange for any money.

Impact on the markets

The overall economic backdrop and expectations of what is required from monetary policy play a major role in determining the direction of stock prices. If the trend in initial claims is falling in a way that suggests that employment is overheating, bond prices typically fall on the outlook for greater overall economic demand, potentially higher inflation and an increased chance that the Federal Reserve will hike interest rates. Stock prices will also take the same downward direction. Hiking interest rates by the fed is a measure that helps in containing inflation, which might result from such trends.

However, there is a situation where stocks prices could experience a temporary lift if the economic backdrop is subdued. Think of a scenario where the jobless claims report comes to life in a manner suggesting upcoming employment strength during a weak economic period. This trend can lead to a rise in stock prices owing to the perception that potentially higher profit growth from greater economic demand will influence higher stock prices. While the renewed strength in the jobless claims report might suggest an eventual need to raise interest rates, it might not take place immediately because of an otherwise weak economic backdrop. It would likely take some time for other economic reports to strengthen in order to justify an economic recovery.

All these happenings influence the stock markets share prices as well as the decisions of the federal bank and these combined are the leading factors that will shape the stock market. Most dealings at the stock market are inspired by perception; therefore, a negative perception will reduce demands of specific stocks just as a positive perception will influence the high rise of a stock that is in demand due to the impression created.

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