Updated Feb 06, 2022

What are Jobless Claims?

What are Jobless Claims?

 

 

One metric to keep an eye on if you're trying to assess business conditions or create economic forecasts is the number of weekly jobless claims. Jobless claims are a count of people who have applied for unemployment benefits. The US Department of Labor publishes them every week. Initial claims that are made immediately after a worker loses a job and continuous claims that are filed by those who are already receiving unemployment benefits, are the two types of jobless claims.

 

Learn how Jobless claims work and how to interpret them when watching the news. Learn why economists keep a careful eye on jobless claims, as well as some of the drawbacks of utilizing them.

 

 

Jobless Claims: Definition and Examples

 

Jobless claims are a measure of workers filing for unemployment insurance that the US Department of Labor publishes every week in a press release. There are two sorts of unemployment benefits:

 

Initial claims: 

When a person loses their work, they must first file an initial claim with their state unemployment office to discover whether they are eligible for benefits.

Continuous claims: 

Once a worker has made a claim and has been unemployed for at least one week, they can file additional claims to obtain unemployment benefits.

The number of initial jobless claims is a leading economic indicator, which means it may be used to forecast economic trends.

 

For example, in March 2020, the number of jobless claims soared as the epidemic forced the closure of numerous non-essential enterprises. Only 256,000 initial claims were filed during the week of March 14, 2020. Initial claims had risen to about 6 million by March 28 of that year, before peaking at around 6.2 million the week of April 4th.

 

How Do Jobless Benefits Work?

Jobless claims, on the other hand, do not reveal the overall unemployment rate. These assertions do not apply to a variety of people, including:

 

• People who work for themselves
• Unpaid family members assisting on a farm or in a business
• Some seasonal laborers and non-profit organization staff
• Unemployed people who have exhausted their unemployment benefits
• People who haven't worked long enough to be eligible for unemployment benefits.
• Employees who were fired due to misconduct rather than economic reasons.
• People who are unemployed yet do not file for unemployment benefits.

 

In a normal recession, the number of jobless claims begins to rise several months before the official start of the downturn. In the six months running up to each of the six recessions before the 2020 crisis, initial seasonally adjusted jobless claims increased. However, a spike in jobless claims does not always imply that a recession is approaching. There have been several short-term rises that have not been followed by a recession.

 

Because they fluctuate with the economic cycle, continued claims aren't considered a leading indication. They do, however, provide indications of where the US economy is headed.

 

The number of jobless claims is a reliable predictor of personal income growth over the next six months. A rise in claims is linked to slower income growth, whereas a decrease in claims is linked to faster income growth.

The number of people who have applied for unemployment benefits is measured by jobless claims. They've been compiled using data from state unemployment offices. Claims data is typically published two weeks after the claims are filed.

 

Because it extends beyond the number of workers who filed jobless claims, the monthly jobs reports produced by the United States Bureau of Labor Statistics provide a more full view of the unemployment rate than the jobs report. It estimates the percentage of the labor force that is employed versus jobless using the Current Population Survey (CPS), a monthly survey of roughly 110,000 people.

 

Many persons are counted as unemployed in the jobs report who aren't qualified for unemployment insurance and hence wouldn't show up in jobless claims. People who abandon their positions in search of new work or who are looking for their first job, for example, will not appear in jobless claims. However, to calculate the unemployment rate, these workers would be considered unemployed.

 

However, not everyone is considered a member of the labor force. Only individuals who are employed or unemployed but particularly searching and available for work are included in the labor force. Retirees, persons in nursing homes or correctional institutions, and those who have given up looking for work are all excluded from the workforce.

 

 

What Impact Do Jobless Claims Have on the Market?

 

As previously stated, initial jobless claims reflect new unemployment, whereas continuous claims reflect the number of people still receiving unemployment benefits. The data on continuous claims is released one week after the original claims. As a result, the initial claims have a greater impact on the financial markets.

 

Many financial analysts include the report's estimates in their market forecasts. The markets can move higher or lower if a weekly update on jobless claims differs insignificantly from consensus predictions. The motion is usually the reversal of the report. When first jobless claims are low, the market tends to rise. The market may fall if initial jobless claims rise.

 

The Initial Jobless Claims Report receives a lot of attention because of its simplicity and the underlying assumption that a healthy job market leads to a healthy economy. To put it another way, more people working implies more disposable money in the economy, which leads to increased personal spending and GDP.

 

 

Why Should Investors Care About Jobless Claims?

 

A mid-month jobless claims data can cause markets to react dramatically, especially if it differs from the cumulative evidence of other recent indicators. If other indications point to a faltering economy, a surprise decline in jobless claims, for example, might delay share selling and bolster stocks. This happens from time to time simply because there isn't any other recent material to chew on. A positive initial Jobless claims number may be lost in the bustle of a crowded news day, and Wall Street may not notice it.

 

Jobless claims are also utilized as inputs into models and indicators. The Conference Board's Composite Index of Leading Indicators, for example, includes average weekly initial jobless claims as one of the ten components.

 

 

Bringing things to a close

 

The US Department of Labor publishes weekly statistics on jobless claims, which show how many people sought unemployment benefits.

 

Workers file initial claims for unemployment benefits quickly after losing their jobs to determine their eligibility. Workers who have already submitted a claim can file a continued claim.

 

Because workers who aren't eligible for or don't seek unemployment benefits aren't represented in jobless claims, the monthly jobs report provides a more full picture of unemployment.