Jobless Claims Reach Nine-Month Low, Reflecting Strong Job Growth
In a positive sign for the US economy, the number of Americans filing new claims for unemployment benefits fell to a nine-month low last week, indicating that strong job growth continued into October. The Labor Department reported a decline of 13,000 in initial jobless claims for the week ended October 14, bringing the total to a seasonally adjusted 198,000 – the lowest level since January. Economists had forecasted 212,000 claims for the week.
This unexpected drop in jobless claims adds to the growing body of positive economic data, including solid retail sales and factory production figures for September. The continued strength in the economy is fueling expectations that the Federal Reserve may keep interest rates higher for a longer period. Financial markets have already started to discount a rate hike next month due to soaring US Treasury yields.
However, even as the labor market remains tight, there are signs that conditions are cooling gradually. According to the Labor Department, unadjusted claims declined 18,561 to 181,181 last week, with notable decreases in states like Texas, New York, New Jersey, Georgia, and California. There was also a notable rise in Tennessee. Despite the gradual cooling, the overall range of claims this year has remained low, between 194,000 and 265,000.
The impact of the United Auto Workers (UAW) strikes on jobless claims has been limited so far, even though the strikes have disrupted supply chains. Michigan saw a spike in claims during the week ending October 7, which was related to the industrial action. Major automakers like Ford Motor, General Motors, and Chrysler-parent Stellantis have furloughed and laid off thousands of non-striking workers.
The recent Fed Beige Book report confirmed that “labor market tightness continued to ease across the nation” in early October, indicating a cooling wage pressure. The report also noted improvements in hiring and retention in some districts, though challenges in recruiting and hiring skilled tradespeople persist. These findings suggest that the labor market is still strong despite the Federal Reserve’s multiple interest rate increases this year.
While the overall labor market remains resilient, the housing market is experiencing a downturn. Existing home sales fell by 2.0% last month, reaching a seasonally adjusted annual rate of 3.96 million units – the lowest level since October 2010. High mortgage rates and tight supply have reduced affordability for first-time buyers, with their share being well below the threshold economists and realtors consider necessary for a robust housing market.
To improve the housing market, analysts believe a significant drop in mortgage rates and an increase in inventory are needed. However, with the average rate on a 30-year fixed mortgage above 7.5%, an uptick in home resales is unlikely in the near future.
The recent data on jobless claims and existing home sales will be followed by next week’s report on the number of people receiving benefits after their initial week of aid. This data will provide more insights into the health of the labor market in October. The labor market’s strength, along with the resilient economy, indicates potential for continued growth, even as concerns over housing and business sentiment remain.
Overall, the positive jobless claims data and other strong economic indicators are helping to bolster expectations that the Federal Reserve will maintain interest rates at their current levels. Federal Reserve Chair Jerome Powell’s upcoming speech could provide further insights into the future of monetary policy.