Another boring day on the data front

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This week continues to be very boring as the lack of key economic data and the waiting for the US CPI next Wednesday keeps the markets at bay. Today, after the BoE policy decision, we will get the latest US Jobless Claims figures.

The US Jobless Claims continue to be one
of the most important releases to follow every week as it’s a timelier
indicator on the state of the labour market. This is because disinflation to
the Fed’s target is more likely with a weakening labour market. A resilient
labour market though could make the achievement of the target more difficult.

Initial Claims keep on hovering around cycle lows, while Continuing Claims
remain firm around the 1800K level. This week Initial Claims are expected at 210K
vs. 208K prior,
while Continuing Claims are seen at 1790K vs. 1774K prior.

WHY IT’S IMPORTANT?

The data tracks new filings for unemployment insurance benefits from the prior week, that’s why the actual name of the report is “weekly claims for unemployment insurance”. If people lose their jobs, they apply for unemployment insurance which will be reflected in the data. Higher unemployement is bad for the economy as that will lead to lower spending and businesses paring back investments. On the other hand, a low level of filings can indicate a strong labour market which is good for the economy as a whole.

The jobless claims data is considered a leading indicator due to its timeliness and it’s included in the Conference Board Leading Economic Index (LEI). One caveat is that not everyone is entitled to unemployment benefits which sometimes can lead to big gaps between the total number of people unemployed and those receiving unemployment benefits. Moreover, the data can be volatile from one week to another, so one should not rush to conclusions based on a single release.

Nevertheless, it’s still a good and timely barometer on the state of the labour market. Generally, figures above the 300K level signal a deterioration in the labour market with the 400K level potentially indicating a recession underway. This is also true for continuing claims although the level is around the 3000K mark. Of course, the data always needs to be taken in the right context and the focus should also be on the trend and the rate of change.