The Most Important Jobless Claims Report Of The Year Comes Tomorrow

| About: SPDR S&P (SPY)
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Summary

Jobless claims will be the last significant read on jobs before the Fed decision next Wednesday.

If last week's jump in jobless claims repeats markets have a problem.

The Fed will likely not pass on a rate hike for higher jobless claims but it's a real-time indicator that has the risk to confuse markets.

Jobless claims report tomorrow morning. Last week reported its weakest economic read in almost six months. That is just ahead of a rate decision that should see the second rate hike in a decade. A weaker economic signal is a stock market (NYSEARCA:SPY) negative.

Jobless Claims Slowed Last Week

Source: Trading Economic

Last week jobless claims showed the economy slowed from the previous weekly reports. It was the slowest economic read in the data series since June.

With the Fed gearing up to hike rates this report tomorrow could cause markets to question the need for a rate hike.

Jobs and inflation are the main measures the Fed uses to determine its monetary policy.

The Fed's main measure for jobs is non-farm payrolls ("NFP") which reports monthly. Jobless claims report weekly and gives us a hint of the direction non-farm payrolls will come in for the month.

Just as the Fed wants to raise rates if jobless claims continue last week's trend then the fear will be that NFP will slow. The Fed watches jobless claims but really cares about NFP. They will not know about NFP for another month. They wouldn't change their stance at this next meeting unless they were to see a change in NFP, which they will not.

As investors though, we will know the last two weeks trend into their rate decision next week. Rising rates are typically associated with a strengthening economy. While the level of jobless claims is strong, the slowing can concern investors.

Tomorrow's number needs to drop (show economic strength) otherwise market players will be concerned that a slowing economy in a rising rate environment would be a market risk.

Conclusion

Many may not pay heed to jobless claims but it predicts NFP. Stacking up the four weeks of jobless claims gives you a good read into the Fed's favorite measure on jobs, NFP. Last week's rise in jobless claims implies a slower economy. If tomorrow's number shows the same into an imminent rate hike, investors have reason to be concerned and could sell.

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