The latest US initial jobless claims’ (IJC) are out. These show how many Americans are claiming state unemployment benefits for the first time.
In particular, the four-week moving average of IJCs, which filters out the weekly ‘noise’, has been a great pointer to future changes in both the US economy and the stock market too.
Why? Because 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 16 July, IJCs climbed 10,000 to 418,000. That was worse than expected – economists had expected a drop to 403,000. But the four-week moving average dipped slightly to 421,250, though this was still almost 6% higher than three months before.
What does this mean for the stock market? 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 recent rally, very neatly. The latest slight improvement in the IJC four-week moving average is a modest boost for stocks. But the jury is still out on the next big move.
Category: Economics