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Why Weekly Unemployment Claims Are a Bright Spot for Markets

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Weekly claims continue to slide

The Conference Board Leading Economic Index (or LEI) uses the number of weekly unemployment claims as an indicator in its economic model. Seasonally adjusted weekly claims data gives an idea about trends in unemployment. Weekly unemployment has a 3% weight in the LEI.

While there is a lot of focus on non-farm data each month, weekly claims receive more attention from the Conference Board because they are more sensitive to business conditions. Whereas the sum of weekly claims is the basis of monthly unemployment data, weekly volatility in claims can be an indication of industry uncertainty.

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Data from recent weeks

Weekly jobless claims, reported on August 24, stood at 234,000. This figure represented an increase of 2,000 claims from the previous week, but was still below the market estimate of 238,000. The unemployment rate remained below the 4.5% mark.

The most recent LEI report comprised weekly claims data from July. Average claims for July stood at 243,000, compared with 243,600 in June. A decrease in the number of claims is positive for the economy. In the July LEI, average weekly initial claims had a net contribution of -0.02 points.

Implication for markets

Weekly claims data induces short term volatility (VXX) in the bond (BND) and currency (UUP) markets. Employment is the key metric the Fed uses to decide monetary policy. Lower weekly claims are positive for the US bond (IEF) and the US dollar (USDU). However, last month, geopolitical tension ruled markets. In the next part of this series, we’ll analyze new manufacturing order data in July.

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