Merryn's Blog

The latest US jobless data should worry investors

A good all-in-one guide to where both the US economy and stock market are heading is the state of US employment. And the news isn't good.

A good all-in-one guide to where both the US economy and stock market are heading is the state of US employment.

The US initial jobless claims figure logs the actual number of people who've filed for jobless benefits for the first time.

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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 for the week to 31 July saw claims jump by 19,000 to 479,000.

That's the highest level since early April.

And it was a lot higher than expected economists had forecast a drop to 453,000.

The four-week moving average has risen by 5,250 to 458,500.

10-08-06-Dblog201

Source: Bloomberg

What does this mean for the US economy?

10-08-06-Dblog202

Source: Bloomberg

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The chart above 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 after this week's surprise climb in claims, the red line is clearly sliding back again. That's not good news for the US economy.

What about stocks?

10-08-06-Dblog203

Source: Bloomberg

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. Rising jobless claims are bad news for stocks because they indicate that the economy is turning down. In short, the latest figure is a clear negative for US shares.

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