Initial Claims

What Are Initial Claims?

The term "initial claims" refers to an employment report that measures the number of new jobless claims filed by individuals seeking to receive unemployment benefits. The report, published since 1967, also shows how many unemployed individuals qualify for and are receiving benefits under unemployment insurance.

Initial claims may be contrasted with continuing claims, which measures ongoing unemployment.

Key Takeaways

  • "Initial claims" refers to a government employment report that tallies the number of individuals seeking unemployment benefits for the first time.
  • It tracks emerging joblessness on a weekly basis, with reports released at 8:30 a.m. EST on Thursdays.
  • When a growing number of people willing to work are unable to find work and must resort to claiming unemployment, it is generally a poor sign for the economy.
  • The initial claims number, therefore, is watched closely by financial analysts and investors.

Understanding Initial Claims

The initial claims number is used by policymakers in conjunction with other employment data to determine the strength of the labor market. It is also watched closely by financial analysts because it provides insight into the health of the economy Initial claims typically rise before the economy enters a recession and decline before the economy starts to recover.

The initial claims report, whose official title is the Unemployment Insurance Weekly Claims Report, gets released at 8:30 a.m. EST each Thursday by the U.S. Department of Labor (DOL). Data is collected from local unemployment offices, given to state unemployment offices, and then forwarded to the DOL.

The report may show weekly inconsistencies, as every application is filed as a claim, irrespective of the applicant's eligibility to receive unemployment benefits. Shortened workweeks may also skew the data. 

Several factors can lead to volatility and weekly inconsistencies, so four-week moving averages are often used to smooth out the data.

The weekly release of the initial claims report makes it useful for indicating trends in unemployment between monthly non-farm payrolls and unemployment rate data. Generally speaking, week-by-week figures are too volatile to get an accurate assessment of economic changes, so four-week moving averages are also used to smooth out the data.

Initial 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 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.