The Initial Jobless Claims is a U.S. report that measures the number of individuals who filed for state unemployment insurance for the first time during the previous week.
There are two types of jobless claims:
- Initial claims
- Continued claims
The two categories represent the total number of individuals that filed for unemployment insurance during a given week.
The Initial Jobless Claims is provided by the Employment and Training Administration of the Department of Labor, and the report comes out for viewing on a weekly basis, each Thursday.
Continuing Jobless Claims measures the number of individuals who have already received unemployment benefits and are continuing to apply for them.
The report provides information on the data from the previous week, ending on Saturday before.
What is Initial Jobless Claims?
The Initial Jobless Claims report, also known as the Initial Claims report, measures the number of people who filed for unemployment benefits for the first time.
An initial claim is a claim filed by an unemployed individual after a separation from an employer.
The claim is a request to seek eligibility for the Unemployment Insurance program.
The unemployment insurance claims that newly unemployed workers file are reported in the Initial Jobless Claims report.
What is Unemployment Insurance?
Unemployment Insurance (UI) provides unemployment benefits, usually in the form of weekly payments to eligible workers.
UI is administered jointly by the U.S. Department of Labor and individual states.
Each state develops its own system for delivering benefits.
According to the U.S. Department of Labor, in order to qualify for unemployment benefits, the individual must:
- Be unemployed through no fault of their own.
- Meet specific state eligibility requirements.
States have different requirements for unemployment recipients to prove they are ready to work but are unable to find a job.
Since not everyone who applies for unemployment insurance is approved, it’s important to note that jobless claims does NOT necessarily reflect the number of people who will actually receive unemployment benefits,
Local employment offices forward their insurance claims data to state employment offices, who then aggregate the data and send it to the U.S. Department of Labor.
The Department of Labor then releases this newly collected data to the public every Thursday.
This number can be a predictor of how the economy is doing.
Why is the Initial Jobless Claims report important?
Because of its weekly frequency, the Initial Jobless Claims report provides clues about what’s going on in the job market.
It is viewed as a leading economic indicator because there’s usually an inverse relationship between initial claims and employment.
- As initial claims FALL, the employment rate tends to increase. An improving employment rate can signal higher disposable income, leading to higher consumption (more spending on goods and services), which means stronger economic growth.
- As initial claims RISE, the employment rate tends to decline. A declining employment rate can signal lower disposable income, leading to lower consumption (less spending on goods and services), which means weaker economic growth.
It can provide an early warning and alert traders and investors about changing job market conditions.
When looking at the Continuing Jobless Claims numbers, it is important to remember that not everyone who is jobless is entitled to unemployment benefits.
How to read the Initial Jobless Claims report
The initial jobless claims reading is compared to consensus forecasts:
- A better-than-expected initial jobless claims reading (known as a “beat”) means a lower reading than the market consensus.
- A worse-than-expected jobless claims reading (known as a “miss”) means a higher reading than the market consensus.
The market reaction to the initial jobless claims reading depends on the current economic environment and how it may affect future monetary policy by the U.S. central bank or fiscal policy by the U.S. federal government.
In general, the market reaction tends to be positive when initial jobless claims come out lower than expected.
A change of at least 30,000 claims up or down is considered significant. Anything less is seen as normal fluctuations.
If the number of people filing for unemployment benefits increases on a sustained basis or is relatively high, it means a large number of people are losing their jobs and applying for unemployment insurance.
If there is a significant increase in these claims, it could potentially be pointing to slowing job growth, as unemployment rises.
In such a case, investors and traders will infer that the economy is not doing well and the next NFP report may come out weak.
Alternatively, a decline in the Initial Jobless Claims is indicative of a healthy economy and future NFP reports should reflect a more positive picture.
When the number decreases significantly, it can be a sign that the economy is accelerating in job growth and is economically sound.
The report also provides a four-week moving average to help smooth claims data as week-to-week changes can be volatile.
Most analysts see a four-week moving average of more than 400,000 claims as signs of economic weakness.
Increases in new claims over several months often predict a decrease in GDP growth.
With the Continuing Jobless Claims, a rise in this number has negative implications for the NFP, since it will affect consumer spending, discouraging economic growth.
Generally speaking, a high reading is seen as negative for the labor market while a low reading is seen as positive.
A Continuing Jobless Claims number greater than 3 million is considered worrying.
When workers start filing for unemployment insurance, traders anticipate a slowdown in the economy and buy government bonds, which pushes interest rates lower.
Lower interest rates may weaken the U.S. dollar (depending on the relative strength of the U.S. economy versus other countries).
For example, even if the employment situation is deteriorating in the U.S. based on the Initial Jobs Claim report, if the employment situation is even worse in other countries, then the U.S. dollar may not budge (and might even strengthen).
Where to find it?
On BabyPips.com’s economic calendar, you can find its event listing.
What time is it released?
Initial Jobless Claims is released weekly, on Thursdays, at 8.30 am ET.