Shift in jobless claims could impact likelihood of Fed cuts
The US Labor Department announced today that US unemployment benefit applications fell to their lowest point in over a year last week. The drop in claims was unexpected and underlines the strength of the US economy and labour market right now.
New claims fell to 187,000 last week — a drop of 16,000 from the prior week. According to Bloomberg, the figure is below every estimate given by a group of economists they surveyed.
Continuing claims, which indicates the number of people on unemployment benefits, also fell to 1.81 million for the week ending January 6th. That’s it’s third straight week of declines and moves it to the lowest point since October.
The US economy continues to surprise analysts, with both employment and consumer spending consistently above expectations despite the weight of inflation and interest rate increases by the US Federal Reserve.
The labour market has been frequently cited by Fed Chair Jerome Powell as a guide for potential interest rate cuts. He has noted the need to balance unemployment against the Fed’s target 2 per cent inflation rate. These numbers point to an unemployment rate that may not be rising as fast as analysts anticipated, which could complicate the expectation of Fed rate cuts later this year.
Read more: Does hot inflation change the outlook for rate cuts? | Wealth Professional
It’s notable that the first few weeks of the year are often skewed by the holiday season, when many businesses add additional workers. There are also signs of moderation in the US labour market, including the Fed’s Beige Book which showed effectively stagnant growth. The same report noted signs of a “cooling labour market” and a let off in wage growth pressures somewhat.
Economists told CNBC that the numbers should be interpreted more as employers holding onto their current employees, rather than adding more staff. The labour market in the US remains tight and competitive.
In statements earlier this week, Christopher Waller, a governor on the Fed board, said that the Fed was close to achieving its 2 per cent target rate, but still noted that they would “take our time” before cutting rates.
According to the Financial Times, Waller found it “hard to believe” that waiting an additional six weeks to cut interest rates “would have a huge impact on the state of the economy.”
