The latest data should continue to allay fears that the labour market is rapidly deteriorating, first raised after a sharper-than-expected slowdown in job growth in July.
It was reported that the number of Americans filing new applications for unemployment benefits ticked up in the latest week, but appeared to be steadying near a level consistent with a gradual cooling of the labour market that should set the stage for the Federal Reserve to kick off interest rate cuts next month.
A slowdown in overall US business activity this month as firms faced diminished ability to push through price increases added to the evidence that the economy is slowing, and inflation is downshifting to a degree that should allow Fed officials to focus more attention on the job market.
With a rate cut now broadly expected next month interest rates on home loans have already begun dropping, and that helped fuel a larger-than-expected rebound in existing home sales last month.
Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 232,000 for the week ended August 17, the Labor Department said on Thursday (August 22). Economists polled by Reuters had forecast 230,000 claims for the latest week.
The latest data should continue to allay fears that the labour market is rapidly deteriorating, first raised after a sharper-than-expected slowdown in job growth in July, which also saw the unemployment rate rise to a post-pandemic high of 4.3%.
Indeed, the latest claims data covers the survey week for this month’s employment report from the Labor Department, and the levelling off in new filings points to “a small decline in the unemployment rate in August,” Nancy Vanden Houten, lead US economist at Oxford Economics, said in a client note.
“Claims are levelling off on a trend basis, consistent with our view that, while the labour market is softening, it isn’t weak enough to warrant anything more than a 25 (basis point) rate cut at the Fed’s September meeting,” she said.
Fed officials have said they are keenly watching the labour market, aware that waiting too long to cut interest rates could cause serious harm.
Layoffs remain historically low, however, with much of the slowdown in the labour market coming from firms scaling back hiring, trailing an immigration-induced surge in labour supply.
The Fed’s 525 basis points worth of rate hikes in 2022 and 2023 are curbing demand.
The US central bank has kept its benchmark overnight interest rate in the current 5.25%-5.50% range for more than a year. With a first rate cut now widely expected at its September 17-18 policy meeting, the market focus is on how large a reduction it will be — a quarter or a half percentage point.
