Each state’s unemployment office reports their unemployment claims to the federal, U.S. Department of Labor, who then calculates the national figures by adding them all up. The report is generally released on Thursday mornings at 8:30am eastern time on a weekly basis. The reason why the report is published is because one of the first signals of economic trouble is when people start to lose their jobs and start filing unemployment claims. Wall street cares a lot about this report. The number of layoffs is important. The report offers highlights from individual states. For example, California may have progressed from the prior period due to fewer layoffs in the leisure and hospitality sector. On the flip side, Pennsylvania may have regressed from the prior period due to increased layoffs in the retail trade industry. The data are seasonally adjusted due to fluctuating hiring trends in different industries. The Department of Labor wants a strong labor market with many people working and publishes unemployment claims to support public and private decision making.
There are two segments of unemployment claims included in the report— Initial claims tell us how many people filed new unemployment claims after losing their jobs in a given week, while continuing claims tell us how many people continue to be unemployed. When people get “laid off”, incomes and production across the economy go down, this is bad for financial assets. It means people will have less money to buy things and businesses will have less people to produce things and sell things to. Less revenue for companies, less revenue for individuals, for governments, for everyone. When unemployment claims are high, the unemployment rate goes up while employment goes down, U.S. GDP and industrial production also go down. Furthermore, a weak labor market in the U.S. means that the world will likely be negatively affected as well. Low unemployment claims are a result of strong hiring and strong economic activity. Strong hiring is welcome news for economic events globally as U.S. economic strength generally spreads around the world albeit unevenly. Low unemployment claims lead to U.S. workers and companies consuming more from and investing more in international economies.
To forecast unemployment claims, we can look at economic indicators such as the hours worked in the economy because businesses tend to cut hours before laying people off, the weekly Staffing Index from the American Staffing Association to see how hiring is doing at staffing companies, the monthly ADP employment report and the employment parts of the Purchasing Managers Index to get a gauge of how manufacturing employment is responding to order flows for high-cost durable goods. We’d also look at business survey data from the National Federation of Independent Businesses for hiring plans, businesses cutting hours and business concerns. In addition, watching consumer confidence and retail sales to see if trends in business revenue are weakening and may lead to layoffs is useful.
Unemployment claims rose to their highest level in history in March 2020 due to the COVID-19 pandemic as businesses were forced to shut their doors due to government-imposed restrictions designed to lower the risk of spreading the infection. In December 2021 on the other hand, unemployment claims fell to their lowest level in five decades as businesses were desperate for workers. In a pandemic era event labeled The Great Resignation, workers left the labor market in droves fueled by a surge in retirements, health concerns from COVID, childcare concerns and all-time high asset prices.
Although not typically the primary influencer of market direction, the market will be negatively affected if unemployment claims are much worse than expected. And positively affected if they’re much better than expected. More unemployment claims means less money in people’s pockets and reduced economic activity on a global scale. For a large portion of the world’s population, work is the most important stream of income.
Analyzing U.S. unemployment claims is important because they correlate inversely with global income. If the U.S and the world’s income is reduced, watch out for a global recession.
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