What is Initial Claims
Initial Claims is a report that measures the number of jobless claims filed by individuals seeking to receive jobless benefits. The report, published since 1967, also shows how many unemployed individuals qualify for and are receiving benefits under unemployment insurance. The initial claims number is watched closely by financial analysts because it provides insight into the health of the economy. Policy makers use the initial claims figure in conjunction with other employment data to determine the strength of the labor market.
BREAKING DOWN Initial Claims
Higher initial claims correlate with a weakening economy. Initial claims typically rise before the economy enters a recession and decline before the economy starts to recover. To learn more about unemployment and the economy, see: The Cost of Unemployment to the Economy.
The initial claims report gets released at 8:30 a.m. EST each Thursday by the U.S. Department of Labor. The report’s official title is “Unemployment Insurance Weekly Claims Report.” Initial claims data is collected from local unemployment offices. The information is then given to state unemployment offices and forwarded to the Department of Labor.
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 work weeks may also skew the data. The weekly release of the initial claims report makes it useful for indicating trends in unemployment between monthly nonfarm 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 and Financial Markets Impact
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, if a trader saw an initial claims figure of 225,000, compared to 220,000 in the prior week, he may be more inclined to sell the USD against other currencies.
For bonds, however, 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. For further reading, see the Q&A: Why do interest rates have an inverse relationship with bond prices?