Job indicators are good guides to how well an economy is really doing. More people working means extra spending and growth, and likely higher share prices, too. But if dole queues get longer, an economy and many of its businesses will suffer.
US ‘initial jobless claims’ (IJC) show how many Americans are claiming state unemployment benefits for the first time. And the four-week moving average of IJCs, which filters out the weekly ‘noise’, has generally been a handy pointer to future changes in both the US economy and the stock market.
For the week to 19 November, IJCs rose by 2,000 to 393,000, slightly worse than expected. But the IJC four-week moving average dipped by 3,250 to 394,250 – the lowest level since early April.
What does this mean for stocks?
Here’s our regular 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.
A month ago, the fall in the IJC four-week moving average hinted at a market rally, and that’s what we got. The IJC now suggests the S&P will bounce once more. But if weekly claims start to climb again soon, any such rally could prove short-lived.
Category: Economics