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Every week, the Labor Department releases its report on weekly unemployment insurance claims Thursday, which can provide some metrics for the market to evaluate the economic status quo. So what is necessary to know about unemployment and its impact on the economy?

Unemployment Rate

What Is the Unemployment Rate?

The unemployment rate is the percent of the labor force that is jobless. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy is growing at a healthy rate and jobs are relatively plentiful, it can be expected to fall. 

In the U.S., the U-3 rate, which the Bureau of Labor Statistics (BLS) releases as part of its monthly employment situation report, is the most commonly cited national rate.

Calculating the Unemployment Rate

The official unemployment rate is known as U-3. It defines unemployed people as those who are willing and available to work, and who have actively sought work within the past four weeks. Those with temporary, part-time, or full-time jobs are considered employed, as are those who perform at least 15 hours of unpaid family work.

To calculate the unemployment rate, the number of unemployed people is divided by the number of people in the labor force, which consists of all employed and unemployed people. The ratio is expressed as a percentage.

ADP National Employment Report

What Is the ADP National Employment Report?

The ADP National Employment Report is a monthly economic data release tracking levels of nonfarm private employment in the U.S. It is also referred to as the ADP Jobs or ADP Employment Report.

Understanding the ADP National Employment Report

If you're not self-employed or a government employee, there is a decent chance that your job payment is processed by Automatic Data Processing Inc. (ADP). The firm handles payroll for about a fifth of U.S. private employment, putting it in a unique position to survey trends in the nation's labor market.

ADP collects data through the payroll services and benefits administration it provides to companies. It then issues reports on its findings, with help from Moody's Analytics.

The ADP National Employment Report is released two days prior to the Bureau of Labor Statistics' employment situation report, which is available on the first Friday of each month. Investors and economists see the ADP report as a preview of the more detailed and comprehensive government data release.

Initial Claims

What Are Initial Claims?

Initial claims are an employment report that measures the number of new jobless claims filed by individuals seeking to receive unemployment benefits. The report, published since 1967, also shows how many unemployed individuals qualify for and are receiving benefits under unemployment insurance. The initial claims number is watched closely by financial analysts because it provides insight into the health of the economy. Policymakers use the initial claims figure in conjunction with other employment data to determine the strength of the labor market.

Initial claims may be contrasted with continuing claims, which measures ongoing unemployment.

Understanding Initial Claims

Higher initial claims correlate with a weakening economy. Initial claims typically rise before the economy enters a recession and decline before the economy starts to recover.

Initial Claims and Financial Markets Impact

The strength of the economy impacts the appreciation or depreciation of the U.S. dollar (USD) against other major currencies. Therefore, currency traders typically look at the initial claims figure as part of their analyses when assessing a currency's prospects for the immediate future. Usually, a higher-than-expected reading is interpreted as negative/bearish for the USD, while a lower-than-expected reading is considered positive/bullish. For example, if a trader saw an initial claims figure of 225,000, compared to 220,000 in the prior week, he may be more inclined to sell the USD against other currencies.

For bonds, however, a higher-than-expected reading is considered positive/bullish, while a negative reading is deemed to be negative/bearish; this is because bond markets may factor in a higher probability of falling interest rates.

Jobless claims are also used as an input for the creation of models and indicators. For example, average weekly initial jobless claims are one of the 10 components of the Conference Board's Composite Index of Leading Indicators.