Initial jobless claims dropped to 216,000 last week, the fewest since February, as the labor market remained tight, according to data from the Bureau of Labor Statistics.
New claims remained far below the threshold of 250,000 that we see as signaling a recession, raising the chance that the cooling economy will have a soft landing.
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But one should take last week’s claims data with a grain of salt as new filings around holidays like Labor Day are often volatile.
Still, new claims have trended down since early August, from 250,000. The 13-week moving average—our preferred measure—fell from 241,000 to 238,000 for the week ending Sept. 2.
The sharp drop in new claims with a tight labor market brought continuing claims down to 1.68 million for the week ending Aug. 26, also the fewest since February and about 10% lower than December 2019, before the pandemic.
With new jobless claims an important leading indicator of job gains, we should expect another strong month for the labor market this month.
While Thursday’s data did not change our view and the market’s view that the Federal Reserve will hold rates steady this month, it added to the case for one more hike in November. The market views the probability of that happening as a coin flip.
The takeaway
Even though we do not think rates should go higher, all options remain on the table for the Fed’s November meeting should inflation rebound more strongly than expected as consumer spending holds up.
