Features

What the latest US jobless figures mean for stocks

The number of Americans claiming state unemployment benefits rose slightly last week. David Stevenson looks at the latest statistics, and explains what they mean for stocks.

Job indicators are good guides to an economy's underlying health. More people working means extra spending, extra growth and likely higher share prices too. But if dole queues lengthen, an economy, and many firms within it, will suffer.

US 'initial jobless claims' (IJC) show how many Americans are claiming state unemployment benefits for the first time. And the four-week moving average of IJCs, which filters out the weekly 'noise', has generally been a handy pointer to future changes in both the US economy and the stock market.

For the week to 3 September, IJCs climbed by 2,000 to 414,000, worse than expected by economists. But the four-week moving average climbed further, by 3,750 to 414,750. That's the highest level since mid-July. And Hurricane Irene apparently made no difference to the figures, says the US Labour Department.

What does this mean for stocks? Look at the chart:

11-09-08-US-jobless-claims

Source: Bloomberg

The purple line is the inverted IJC four-week moving average. The higher this goes on the chart, the fewer claims are being submitted. So a rising purple line is good news, and a falling line bad news. The red line is the S&P 500 index, the world's most watched stock market index.

The IJC figures forecast its May drop, and also its June rally, very neatly. Of course, the S&P 500 has since taken a real tumble, of which the IJC figures didn't forewarn. But the latest turndown in the IJC four-week moving average suggests that the recent rally in the S&P may well not last much longer.

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021
Free 6 issue trial then continue to