Understanding the Weekly Unemployment Claims Number

Editor's Note: You can find our complete library of free investing articles here.

The U.S. government releases two broad sets of unemployment numbers: the weekly unemployment claims and the monthly unemployment and non-farm payroll numbers. Typically, the monthly unemployment numbers carry more weight, but the weekly unemployment claims can provide you with tremendous ongoing information on a much more regular basis.

[VIDEO] Understanding the Weekly Unemployment Claims Number

Weekly Initial Unemployment Claims

The weekly initial unemployment claims number measures the total number of people who filed for unemployment benefits for the first time during the previous week.

The number does not include individuals who applied for benefits before or after the designated week.

The numbers are usually released on Thursday morning at 8:30 am Eastern Time.

Seasonal Adjustment

Seasonal adjustments to the unemployment numbers play an important role in your analysis of the numbers. The Bureau of Labor Statistics (BLS) describes seasonal adjustments this way:

“Total employment and unemployment are higher in some parts of the year than in others. For example, unemployment is higher in January and February, when it is cold in many parts of the country and work in agriculture, construction, and other seasonal industries is curtailed. Also, both employment and unemployment rise every June, when students enter the labor force in search of summer jobs.

The seasonal fluctuations in the number of employed and unemployed persons reflect not only the normal seasonal weather patterns that tend to be repeated year after year, but also the hiring (and layoff) patterns that accompany regular events such as the winter holiday season and the summer vacation season. These variations make it difficult to tell whether month-to-month changes in employment and unemployment are due to normal seasonal patterns or to changing economic conditions. To deal with such problems, a statistical technique called seasonal adjustment is used. This technique uses the past history of the series to identify the seasonal movements and to calculate the size and direction of these movements. A seasonal adjustment factor is then developed and applied to the estimates to eliminate the effects of regular seasonal fluctuations on the data. When a statistical series has been seasonally adjusted, the normal seasonal fluctuations are smoothed out and data for any month can be more meaningfully compared with data from any other month or with an annual average.”

The Importance of the 4-Week Moving Average

Looking at the initial claims numbers from week to week can be difficult because of volatility.

However, if you look at a 4-week moving average of the weekly initial unemployment claims, you get a much clearer picture of where unemployment is headed in the United States.

If the trend of the 4-week moving average is headed higher, you know the economy is deteriorating.

If the trend of the 4-week moving average is flat, you know the economy is stabilizing.

If the trend of the 4-week moving average is headed lower, you know the economy is improving.

Source: Federal Reserve Bank of St. Louis.


Image courtesy bgottsab.