America’s latest ‘initial jobless claims’ (IJC) are out. These show how many of the country’s workforce is claiming state unemployment benefits for the first time.
The four-week moving average of IJCs, which filters out the weekly ‘noise’, has been a handy pointer to future changes in both the US economy and the stock market.
More Americans at work means extra spending, extra growth – and likely higher share prices, too. But if US dole queues lengthen, the economy will suffer – and the rest of the world will feel the effects.
For the week to 6 August, IJCs dipped by 7,000 to 395,000 – better than economists were expecting. Meanwhile, the four-week moving average eased 3,250 to 405,000, the lowest level since mid-April.
What does this mean for stocks? Look at the chart…
Source: Bloomberg
The purple line is the inverted IJC four-week moving average. The higher this goes on the chart, the fewer claims are being submitted. So a rising purple line is good news, and a falling line bad news. The red line is the S&P 500 index, the world’s most watched stock market index.
The IJC figures forecast its May drop, and also its June rally, very neatly. Of course, the S&P has since taken a real tumble, which the IJC figures didn’t forewarn. But the latest pick-up in the IJC four-week moving average suggests that a stock market rally may be in store – indeed the S&P is up 1.5% on the news.
Looking longer-term, America’s job picture still looks quite bleak. While companies have slowed the pace at which they’ve been firing workers, they’ve been wary about taking on new staff. That points to slow consumer spending – and more worries for the S&P index as well.
Category: Economics