A good all-in-one guide to where both the US economy and stock market are heading is the state of US unemployment.
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 for the week to 24 July showed an 11,000 fall in claims to 457,000 – broadly in line with economists’ expectations of 460,000.
The four-week moving average has fallen by 4,500, as you can see on the chart below.
What does this mean for the US economy?
Take a look at the chart below.
This shows the year-on-year change in US GDP (green) going back over the last 25 years, compared with the inverted – i.e. reversed – four-week moving average of initial jobless claims (red). Fewer claims, i.e. a rising red line on the chart, should be good for economic growth.
But despite this week’s slight fall in claims, the red line is clearly starting to flatten out. That’s hardly pointing to good times ahead.
What about stocks?
Here we’ve taken a shorter-term look at the comparison between the initial jobless claims’ four-week moving average – 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 figure is broadly neutral for US shares.