Merryn's Blog

Latest US jobless claims are a bad omen

The latest weekly figures on American unemployment claims bode ill for the US economy - and for global stock prices.

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.

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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.

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What does this mean for the US economy?

10-08-12-jobless

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?

10-08-12-jobless2

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.

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