Unemployment Claims Fall More Than Expected
(Reuters) – The number of Americans filing new applications for unemployment benefits fell more than expected last week, suggesting fears the labor market is unraveling were overblown and the gradual softening in the labor market remains intact.
Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, according to the Labor Department on Thursday. This marks the largest drop in about 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week.
Claims have been on a roughly upward trend since June, partly due to volatility associated with temporary motor vehicle plant shutdowns for retooling and disruptions caused by Hurricane Beryl in Texas.
Although claims over the past few weeks have hovered near the high end of the range for this year, layoffs remain generally low. Government data from last week indicated that the layoffs rate in June was the lowest in over two years. The slowdown in the labor market is attributed to less aggressive hiring, as the Federal Reserve’s interest rate hikes in 2022 and 2023 dampen demand.
Last week, the U.S. central bank kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has remained since last July. However, policymakers indicated their intention to reduce borrowing costs at their next policy meeting in September.
Despite this, the government’s monthly nonfarm payrolls report last Friday revealed that job gains slowed significantly in July, and the unemployment rate increased to 4.3%, raising concerns in markets about a potentially deteriorating labor market that might necessitate strong action from the Fed.
Interest rate futures contracts currently suggest a roughly 70% probability that the Fed will begin cutting borrowing costs next month with a potential larger-than-usual 50-basis-point reduction.
Additionally, the number of individuals receiving benefits after an initial week of aid, a proxy for hiring, increased by 6,000 to a seasonally adjusted 1.875 million during the week ending July 27, as reported in the claims report.
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