Latest US jobless claims are a bad omen

Indicator

US initial jobless claims (weekly)

What is it?

A good all-in-one guide to where both the US economy and stock market are heading. The US initial jobless claims figure logs the actual number of people who’ve filed for jobless benefits for the first time. Because this is compiled weekly, it can be volatile and later revised. But the four-week moving average of these claims smoothes that out.

What’s the latest?

The latest figure – following a 3,000 upward revision of the previous number – for the week to 7 August saw claims rise by 2,000 to 484,000. That’s the highest level since mid-February. Economists were caught out again, having on average forecast a drop to 465,000. Indeed, the highest estimate was 480,000, says Bloomberg.

Meanwhile, the key four-week moving average measure of these claims has risen by a chunky 14,250 to 473,500.

What does this mean for the US economy?


Source: Bloomberg

This shows the year-on-year change in US GDP (in blue) over the last 25 years compared with the inverted – i.e. reversed – four-week moving average of initial jobless claims (in red). Fewer claims, i.e. a rising red line on the chart, should be good for economic growth.

But after this week’s big climb in claims, the red line is clearly falling on the chart again. That’s a bad omen for the US economy.

What about share prices?

Source: Bloomberg

Here we’ve taken a shorter-term look at the comparison between the initial jobless claims’ four-week moving average – in red, again inverted – and the S&P 500 index in blue. Falling job claims are good for stocks because they indicate that the economy is improving. In short, the latest poor figure is another clear negative for US shares.

In turn, that’s likely to be bad news for stock prices globally.

6 Responses

  1. 14/08/2010, david wrote

    I have been unemployed for over 16 months, my unemployment benefits were stopped after 2 months because I enrolled in college. I am one of the millions that are not being counted so that the unemployment figures look better than they really are. The unemployment picture is much worse than what is being reported!

  2. 14/08/2010, Peter - Amsterdam wrote

    I have been unemployed for two years now.
    As my work was always contract freelance work I do not qualify for any unemployment benefit in The Netherlands even though I pay very hefty taxes here.

    So I never appear anywhere as unemployed.

    In truth I am 64 and am finding contracts difficult to come by, which I personally think is due to ageism.

    If we are to retire later and later in life then the whole business community needs to get it’s act together with older workers, we still have a lot to offer, for example great experience and hard working.

    At the age of 62 I was told by a prospective employed that I had very sucessfuly worked for in the past:
    “Isn’t it about time you retired Peter?”

    Doesn’t exactly help when you are looking for work.

    I’m one of the lucky ones, I saved hard. But to see those savings dwindling until my 65th birthday is really galling.

    It’s tough out there chaps & chapesses !!!

    Regards

    Peter

  3. 17/08/2010, carol wrote

    I was age 52 when I moved here from the USA in 1998 after marriage to a Brit and it appeared that where ever I applied for work I was told that I was over qualified. I really thought that most human resource people here thought I was too old.
    I decided to open a gift shop with money that came from selling my house in the USA. I employed 3 people who I was forced to give 4 week paid holiday when I had never had more than 2 weeks paid holiday in my own working life. I had to pay someone to cover for me for my unpaid holiday. The small business person is squeezed dry in Britain and the EU and is consequently discouraged from creating jobs due to over regulation and red tape. People need to remember that the reason there is a job is that there is a job to be done. Get off your bums, Brits and quit acting like the world owes you a living and lets give some relief to the people who create the jobs, the entrepreneurs.

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