Initial Jobless Claims Impact on Financial Markets

The strength of the economy impacts the appreciation or depreciation of the U.S. dollar (USD) against other major currencies. Therefore, currency traders typically look at the initial claims figure as part of their analyses when assessing a currency's prospects for the immediate future.

Usually, a higher-than-expected reading is interpreted as negative/bearish for the USD, while a lower-than-expected reading is considered positive/bullish. For example, a trader who saw an initial claims figure of 225,000, compared to 220,000 in the prior week, may be more inclined to sell the USD against other currencies.

For bonds, on the other hand, a higher-than-expected reading is considered positive/bullish, while a negative reading is deemed to be negative/bearish. This is because bond markets may factor in a higher probability of falling interest rates.

Jobless claims are also used as an input for the creation of models and indicators. For example, average weekly initial jobless claims are one of the 10 components of the Conference Board's Composite Index of Leading Indicators.

As mentioned, the initial jobless claims measure emerging unemployment and the continued claims data measure the number of people still claiming unemployment benefits. The continued claims data is released one week later than the initial claims. For this reason, the initial claims usually have a higher impact on the financial markets.

Many financial analysts incorporate estimates of the report into their market forecast. If a weekly release on jobless claims comes insignificantly different than consensus estimates, this can move the markets higher or lower. Generally the move is the inverse of the report. If initial jobless claims are down, the market will often rally upwards. If the initial jobless claims are up, the market may slump.

The Initial Jobless Claims Report gets a lot of press due to its simplicity and the basic assumption that the healthier the job market, the healthier the economy. That is, more people working means more disposable income in the economy, which leads to higher personal consumption and gross domestic product (GDP).

Also read: What Are Initial Jobless Claims?

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