In a positive sign for the US economy, the number of Americans filing for jobless benefits dropped significantly last week, offering some relief to recession fears that had been mounting in global markets.
According to the Labor Department’s report on Thursday, initial jobless claims fell by 17,000 to 233,000 for the week ending August 3.
This decline suggests that the labor market remains resilient despite recent economic uncertainties.
The latest jobless claims data came in below analysts’ expectations of 240,000, as surveyed by FactSet, and provided a much-needed boost to market sentiment.
Earlier in the week, a troubling jobs report revealed that the US unemployment rate had reached its highest level in nearly three years in July, sparking a global selloff that led the S&P 500 into correction territory.
The better-than-expected jobless claims numbers, however, helped to ease concerns about the health of the US labor market and the broader economy.
Initial state unemployment claims, which are often viewed as a proxy for layoffs, fell to their lowest level since early July.
This decline is particularly noteworthy given the recent uptick in the overall jobless rate for July.
The drop in weekly jobless claims from the previous week’s revised level of 250,000 indicates that the job market is still strong, despite some signs of cooling.
The four-week average of claims, which helps to smooth out the volatility in the weekly data, rose slightly by 2,500 to 240,750.
While this increase may suggest some underlying weakness, it is not enough to raise significant alarms about the state of the labor market.
On the other hand, continuing jobless claims, which track the total number of Americans actively receiving unemployment benefits, increased by 6,000 to 1.88 million for the week ending July 27. This marks the highest level recorded since November 2021.
Although the rise in continuing claims could be interpreted as a sign of softness in the labor market, the overall level remains historically low, suggesting that the job market is still in relatively good shape.
Certain states experienced notable fluctuations in initial claims. Michigan, Missouri, and Massachusetts saw the largest increases, while Texas, New York, and Ohio reported significant decreases.
Meanwhile, New Jersey continued to have the highest insured unemployment rate at 2.8%, followed by Rhode Island and Puerto Rico.
US bond yields, and equity futures react
The release of the jobless claims data also had a noticeable impact on financial markets. US bond yields rose, reflecting reduced concerns about an imminent economic downturn.
The yield on the 2-year Treasury note, which closely tracks changes in the Federal Reserve’s benchmark interest rate, increased by 0.02 percentage points.
In equity markets, Wall Street futures turned higher in response to the report, with S&P 500 Futures rising by 0.8% and Nasdaq 100 futures up by 1.14% as of 8:06 a.m.
Mohamed A. El-Erian, chief economic advisor at Allianz, commented on the data, stating,
“US weekly jobless claims came in at 233,000, down from a revised 250,000 — a relief after last week’s unemployment and growth scare. The details of this data release will be subject to a higher level of scrutiny with a view to assessing breadth and other distributional aspects. All this with the important qualification that this high frequency data series is inherently noisy. Having said that, markets are reacting.”
Earlier in the day, El-Erian had noted that if jobless claims fell below 230,000, it would signal a gradual and orderly normalization of the labor market rather than a more severe economic downturn.
The latest figures, while slightly above that threshold, still provide some reassurance that the US economy is on a stable footing, at least for now.
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