Initial claims for unemployment insurance were lower than anticipated last week, contradicting indications of a weakening labor market. The Labor Department reported that first-time filings for jobless benefits were at a seasonally adjusted 233,000 for the week, a decrease of 17,000 from the previous week’s revised level and below the Dow Jones estimate of 240,000.
Despite concerns about slowing job growth and potential recession signs, the report led to a positive shift in Wall Street sentiment. Stock market futures, initially negative, turned significantly positive after the 8:30 a.m. ET release, while Treasury yields remained elevated.
While the headline number eased some worries, the number of continuing claims, which lags by a week, rose to 1.875 million, the highest since November 27, 2021. Jobless claims have been on the rise for most of the year, attributed to Hurricane Beryl disruptions and summer shutdowns at auto plants. Michigan and Texas saw the largest declines in the week, with drops of 7,401 and 4,814 respectively, based on unadjusted figures.
The four-week average climbed to 240,750, the highest in nearly a year, following a 14,000 increase in claims the previous week. Analysts like Robert Frick, a corporate economist at Navy Federal Credit Union, noted that the recent decline in claims suggested that weather and seasonal auto plant closures were responsible for the prior week’s sharp rise.
Concerns about the labor market intensified after the July nonfarm payrolls report showed a modest increase of 114,000 jobs, with the unemployment rate rising to 4.3%. This triggered the Sahm Rule, which assesses recessions by tracking changes in the jobless rate. Market volatility surged, with a significant sell-off starting the previous Thursday, sparking fears of deeper economic issues in the U.S.
Traders now anticipate the Federal Reserve to start reducing interest rates in September, with some calling for an emergency rate cut to counter recent weaknesses. The CME Group’s FedWatch tracker of fed funds futures contracts indicates a high likelihood of a half percentage point reduction as the first move, with a full percentage point cut expected by year-end.
