What are Initial Claims?

Initial claims are the requests for unemployment benefits paid to those who have recently lost their jobs due to an elimination of their positions or some other factor that has led to the termination of their employment. Data of this type is important when it comes to evaluating the condition of an industry within a national economy or even the general economy itself. Investors will often look closely at the number of initial claims filed from one period to the next as one way of understanding the current state of the economy and predicting upcoming trends with jobs growth. Doing so can often yield data that is useful in making investment decisions in both the short term and the long term.

In many nations, unemployment benefits are provided on a state or provincial level. It is within this context that data regarding initial claims are maintained and tracked. In terms of using these claims as one of several business cycle indicators, tracking initial claims within a state or group of adjoining states can often yield clues as to what is happening with the economy within that particular region of the nation. The findings may also provide the basis for comparing unemployment trends in other parts of the country, to determine whether similar circumstances are producing the same type of trends with job losses, or even the creation of jobs in emerging industries.

For investors, tracking initial claims from one period to the next provides data on how certain sectors of the marketplace are moving. Since increasing unemployment within a given industry indicates that companies within that business sector are likely to experience some losses in profits, this leads to the logical conclusion that the value of stocks issued by those companies could be adversely affected. Identifying situations of this type can make it much easier to limit investments in those industries and thus minimize the potential for losses to the portfolio.

Investors who are involved in the foreign exchange or FOREX market will also monitor the trends with initial claims. This is because increasing numbers of claims will likely have some impact on the value of that country’s currency on the world market. As the currency appreciates or depreciates in relation to the unemployment rate, investors in currency trading can use the data to determine how to go about trading the currency to best effect, based on what is happening in other countries to affect the value of their currencies.

It is important to note that initial claims are not the only indicators utilized to predict movements in the marketplace, or even the overall health of an economy. In situations where emerging technologies are replacing older ones, it is not unusual for unemployment to increase as a portion of the workforce is displaced by those newer technologies. As those displaced employees are retrained to take on tasks relevant to the newer business models, the amount of initial claims per period begin to decrease and balance to the economy is restored. During this period, the impact on the general economy may be minimal, especially if the displacement is limited to one particular industry and affects workers in a small region of the country.