Why jobless claims rose but the averages are still favorable
New unemployment claims
New unemployment claims (or jobless claims) are compiled weekly by the Employment and Training Administration of the U.S. Department of Labor to show the number of individuals who filed for unemployment insurance for the first time.
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The lower the number of unemployment claims, the stronger the job market, and vice versa. An increasing trend in jobless claims suggests a deteriorating labor market. On the other hand, a decreasing trend suggests improvement in the job market.
Jobless claims moved higher, but the trend is still favorable. Initial claims rose 16,000 in the week of March 29, to 326,000. But the four-week average is stable, at 319,500.
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the lower the jobless claims, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it running, so a stronger job market generates a healthier economy.
There’s a downside, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff or use higher wages to lure people from other jobs because of a shortage of workers leading to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the lookout for inflationary pressures.
By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation looks threatening, it’s a good bet that interest rates will rise and that bond and stock prices will fall.
Industrial companies, as major contributors to the job market, are affected by these employment statistics releases. The performance of industrials ETFs like the SPDR Industrial Select Sector Fund (XLI), which has companies like General Electric Co. (GE) and Boeing Co. (BA) in its portfolio, the Vanguard Industrials Index Fund (VIS), and the iShares Dow Jones US Industrial Sector Index Fund (IYJ) serves as a good indicator of the industrial sector.