Why the fall of continuing claims provides a silver lining to jobless claims
Initial jobless claims figure climbs for the week ending May 17—reverses two weeks of losses
The weekly initial jobless claims report for the week ending May 17, was released on Thursday, May 22 by the U.S. Department of Labor: Employment and Training Administration. The report gives an estimate of persons filing for unemployment insurance for the first time. According to the report, initial jobless claims increased sharply in the week to 326,000 from 298,000 the previous week. The figure missed consensus analyst estimates by a wide margin of 16,000.
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Last week, the level of initial jobless claims had come in at only 298,000. April’s figure reverses two weeks of decreases in the level of initial claims. The 4-week moving average, which tends to smooth out week-to-week fluctuations, was down by 1,000 to 322,500.
Continuing claims decline to record low
Continuing claims, which are applicable to workers who have applied for benefits under unemployment insurance for two or more weeks, declined by 13,000 to 2.653 million for the week ending May 10. This represents a record for the recovery following the Great Recession. Usually, the week-to-week volatility in the initial claims report makes it an inconsistent indicator for measuring labor market performance. However, due to the decline in continuing claims reaching a significant milestone, financial markets did react to the report.
Implications for economic growth
In reaction to the lower continuing claims estimate, the S&P 500 Index (SPY) increased by 0.2% at the close on Thursday. When the number of job losses in the economy declines, it usually implies higher consumer spending because people with jobs are more likely to spend money than those without jobs. An improving labor market would have a positive impact on consumer cyclical stocks. Investors can gain exposure to these securities by investing in ETFs like the Vanguard Consumer Discretionary ETF (VCR) and the SPDR Consumer Discretionary Select Sector ETF (XLY). The world’s largest online retailer, Amazon.com (AMZN), is part of the top ten holdings of both VCR and XLY.
While a decline in claims is favorable for economic growth and broad-based stock indices, bond markets usually take a divergent view because increased economic growth is usually accompanied by higher interest rates. 10-year Treasury yields increased by two basis points to 2.56% on Thursday, on the improved economic outlook. The price of the iShares 7–10 Year Treasury Bond ETF (IEF) declined by 0.1% to $103.38 on Thursday.
To read more about how April’s better-than-expected labor market rebound impacted financial markets, please read the Market Realist series, Why April 2014 saw the best payroll numbers since January 2012.