“Unemployment filings hold steady as labor market cools – all eyes on Powell’s speech in Jackson Hole”

Initial filings for unemployment benefits were roughly flat last week, reflecting a labor market that is cooling but not rapidly deteriorating as the employment outlook remains in focus ahead of Federal Reserve Chair Jerome Powell’s Friday speech in Jackson Hole, Wyo.

New data from the Department of Labor released Thursday showed 232,000 initial jobless claims filed in the week ending Aug. 17, up from 228,000 the week prior and in line with economists’ expectations. Continuing jobless claims rose again to 1.86 million, the highest level since November 2021.

Economists are closely monitoring these numbers, with Oxford Economics senior economist Nancy Vanden Houten noting that “claims appear to be leveling off on a trend basis.” She added that there is nothing in the claims data to change the view that the labor market is softening but not weak enough to warrant anything more than a 25bps rate cut at the Fed’s September meeting.

Similarly, Oliver Allen, senior economist at Pantheon Macroeconomics, mentioned that underlying claims have plateaued and are likely to slip back in the near term.

With recent data showing inflation falling, economists are focusing on the labor market as “where the action is going to be” in terms of how much the Federal Reserve will slash interest rates this fall.

The Federal Reserve’s July meeting minutes noted that Fed officials believe “upside risks to the inflation outlook were seen as having diminished, while downside risks to employment were seen as having increased.” This commentary came before several data points over the past few weeks showed a cooling in the labor market, including the July jobs report, which revealed the second-weakest monthly job additions since 2020 and the highest unemployment rate in nearly three years.

An annual benchmark revision from the BLS showed the US economy employed 818,000 fewer people than originally reported as of March 2024, indicating that the labor market may have slowed earlier and by a greater magnitude than initially thought.

Deutsche Bank senior US economist Brett Ryan stated that the revisions data solidifies the case for starting cuts in September, but it doesn’t necessarily advance the case for aggressive cuts right away.

As markets fully price in an interest rate cut from the Fed by the end of September, all eyes are on Powell’s speech on Friday for potential signals. However, Ryan believes the case for a 50 basis point interest rate cut is more likely to be settled when the August jobs report is released on Sept. 6.

In conclusion, the labor market remains a key focus for economists and investors as they await further data and signals from the Federal Reserve regarding potential interest rate cuts. Powell’s speech in Jackson Hole and the upcoming jobs report will provide more clarity on the state of the economy and the Fed’s future actions.