What Are Initial Claims?
Initial claims are new jobless claims filed by U.S. workers seeking unemployment compensation, included in the unemployment insurance weekly claims report. The report, published since 1967, includes a separate count of workers receiving unemployment insurance benefits, known as continuing claims,
- "Initial claims" refers to the government report on the number of workers applying for unemployment benefits for the first time following job loss.
- The report tracks emerging joblessness on a weekly basis, with releases at 8:30 a.m. EST on Thursdays for the prior week's claims activity.
- First-time jobless claims can be a useful leading indicator because elevated numbers tend to lead to further economic weakness, and to decline ahead of a recovery.
- Initial claims show the recent layoffs trend, not a full picture of the labor market.
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, making them useful as a leading indicator.
The weekly claims report is released Thursdays at 8:30 a.m. ET by the U.S. Department of Labor (DOL). State workforce agencies gather the data from local unemployment offices, then forward it to the DOL.
First-time claims are reported for the week ended the prior Saturday. Continuing claims in the report are for the week ended 12 days earlier. Initial claims are reported both on a nominal and a seasonally adjusted basis. The report also provides four-week moving averages for both initial and continuing claims.
First-time claims numbers can be volatile, subject to distortions for a variety of reasons including holidays and weather. They don't provide the comprehensive picture of the labor market presented in the DOL's monthly employment report.
Initial claims do provide more frequent data points indicating the trend in layoffs based on the recent decisions of U.S. employers. The layoffs trend can be particularly telling at economic turning points.
Limitations of First-Time Claims Data
Because not all workers qualify for unemployment insurance, the initial claims number does not reflect job losses among most part-time or temporarily employed labor market participants.
And because successful unemployment claims usually stem from layoffs, the numbers miss workers' decisions to quit their jobs for a variety of reasons. These eventually show up in the monthly Job Openings and Labor Turnover Survey (JOLTS), also from the Department of Labor.
The claims report relies on data gathered by the states, and so was distorted early in the COVID-19 pandemic by the huge backlogs of unemployment claims in swamped and outdated state processing systems.
How Initial Claims Affect Financial Markets
The strength of the U.S. economy plays a big role in determining how the U.S. dollar (USD) trades against other major currencies. That's partly because a strong economy is associated with higher interest rates, which make a currency more attractive on a relative basis.
Currency traders are likely to view a higher-than-expected initial claims reading as negative or bearish for the USD, while a lower-than-expected number would be considered positive, or bullish. For example, a trader who saw an initial claims figure of 187,000 compared to 215,000 in the prior week and expectations of 210,000 might be more inclined to buy the USD against other currencies.
For bonds, on the other hand, a higher-than-expected reading is considered bullish, while an undershoot would be viewed as bearish. Surprisingly high first-time jobless claims are likely to be viewed as a sign of economic weakness, associated with falling interest rates and higher bond prices.
Jobless claims are also used as input in 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.