Investors who ve written off weekly economic data as background noise may do well to start tuning in.

Movements in the U.S. stock market have been highly correlated to the unemployment data released each week by the government, according to a recent report.

Since 2000, changes in the four-week moving average of the number of people filing for new unemployment insurance benefits have been inversely related to the weekly movements of the S&P 500 index. In other words, as claims have risen, the market has fallen (and vice versa). The correlation is strong and statistically significant, according to James Paulsen, chief investment officer at Wells Capital Management and the author of the report.

For many investors, this finding is something of a coup. The weekly jobless claims report is sometimes brushed aside by market watchers and pundits in favor of the broader monthly unemployment report. However, the new study suggests investors might have more or at least as much success by doing the opposite, or at least paying the weekly number more attention.

Paulsen says that after years of looking at weekly jobless claims, he was surprised to find such a close correlation with the stock market. They are almost the same with either one leading the other slightly at times, he says, adding that the magnitude of the movements are very similar.

The monthly jobs report, which is released at the beginning of each month (after the month reported), is also tied to the market, says Ryan Detrick, senior technical strategist at Schaeffer s Investment Research. However, monthly payroll data are considered a lagging not leading indicator.

To be sure, the value of weekly jobless claims data is hardly news to everyone. The Conference Board, an industry research and consulting group, uses the number in computing its Leading Economic Index. The group periodically looks at all 10 individual components of the index to assess whether they re still singing the same song, and has made changes over the past 15 years, but changing the status of claims hasn t been high on the list, says Ken Goldstein, an economist at the Conference Board.

Goldstein says if investors paid closer attention to the weekly data, they might make better decisions, but he warned against relying on those numbers alone.

Source: Wells Capital Management

Why are weekly jobless claims and stocks so closely related? There are few theories. Marc Pado, chief market strategist at Cantor Fitzgerald, says that jobless claims may be a leading indicator of the economy but more in sync with the market. As the claims numbers come in each week, the outlook for the economy is immediately adjusted and the market adjusts daily, weekly, to every piece of data, so the two will never be far off from each other for more than a week or two, he says.

The numbers also may be affecting each other. Investors follow the employment situation, and companies keep tabs on the market to make decisions and both also may be impacted by the situation abroad.

Paulsen says the lesson for investors is that even though other issues like the European debt crisis may garner more attention, domestic fundamentals have a tangible impact on the market. If the correlation continues, a prediction for job growth is a prediction for market growth and stagnant or weakening jobless numbers could signal a bear market.

On Thursday, the Bureau of Labor Statistics said that 472,000 people filed new unemployment insurance claims last week, up from 460,000 the week before and above expectations of 450,000.

Jobless claims hit a recent peak of 474,000 on May 14. Since then, they ve remained range-bound between that point and 459,000. Over the same period, the S&P 500 has fallen 1.2%. If claims rise back toward 500,000, they could signal a meltdown scenario for the stock market, which would heighten the double-dip fears, Paulsen says. On the other hand, if claims resume a trend downward, they could spark a fresh rally, he says.

Pado says a weekly claims number around 450,000 is generally considered to represent zero job growth, which isn t good because the population of new people looking for jobs is growing every day. A drop in claims to 400,000 would suggest the number of jobs being added are equal to the number of people entering the work force. But at that pace, the economy is not supplying jobs for all those who are already out of work, he adds.

Paulsen says weekly claims have always been tied to the market but that the relationship has strengthened recently. From the 1970s through the '90s, interest rates and inflation were so much more of the story, overshadowing improvement in jobless claims, he says. In the last decade, inflation concerns have been largely muted, so now the question is whether the economy is growing or not and claims do a good job of picking that up.

After a few years of growth, and once the fears of a double-dip recession have subsided, the indicator may not be as important or the relationship may not be as close, he says.

Pado warns that although the weekly data are correlated to market performance, paying too much attention to the numbers can be hazardous. There s a greater risk in becoming short-term oriented all the time the shorter your expectations or time target, the greater the risk you ll be wrong, he says.

Investors should be looking at overall profit and growth, and management not just in an industry, but for a particular company when they re starting to ask questions about an investment, says Goldstein. You don t start with initial claims, he says.