① Just as ominous warnings about AI-driven disruption in the U.S. labor market have been mounting, a set of strikingly strong employment data released last night took nearly all market participants by surprise; ② Initial jobless claims in the U.S. unexpectedly fell last week to their lowest level since the 1960s.
Caixin Global, July 24 (Editor: Xiaoxiang) — Just as ominous warnings about AI-driven disruption in the U.S. labor market have been mounting, a set of strikingly strong employment data released last night took nearly all market participants by surprise: initial jobless claims in the U.S. unexpectedly fell last week to their lowest level since the 1960s.
This suggests the U.S. labor market remains resilient, not only allowing Federal Reserve officials to stay focused on taming inflation but also seemingly removing any lingering concerns about potential interest rate hikes...
The U.S. Department of Labor reported on Thursday that, for the week ended July 18, initial jobless claims declined by 22,000 from the prior week—the largest drop in three months—falling to a seasonally adjusted 187,000.
This figure marks the lowest level for initial jobless claims since September 1969. Economists surveyed by media outlets had previously forecast a modest increase in the latest week’s initial claims to 212,000.
The report released Thursday covers the survey week for the upcoming July nonfarm payrolls report, which will be published in approximately two weeks—and serves as the latest signal of sustained strength in the U.S. labor market. Data show that the four-week moving average of initial claims as of the week ended July 18 stood at 207,500, down from the previous reading of 214,300.
Meanwhile, continuing claims for the week ended July 11 totaled 1,796,000, hitting a six-week low and coming in below the market expectation of 1,807,000.
How should this strong data be interpreted?
Economists noted that part of the decline in initial jobless claims can be attributed to unusual seasonal volatility caused by routine summer shutdowns at automobile plants this year. Initial claims are likely to rebound next week back toward the recent trend level of around 200,000.
Nevertheless, some market participants still believe that even accounting for seasonal factors, the overall strength of the data cannot be overlooked.
‘Given that summer data are typically more volatile, there may be some seasonal fluctuations in this release. However, the fact that initial jobless claims remain at an exceptionally low level is hard to ignore, and the trend in continuing claims remains encouraging,’ said Matthew Martin, Senior U.S. Economist at Oxford Economics. ‘Low layoff rates, more stable nonfarm payroll growth, and weak labor supply growth will constrain any rise in the unemployment rate over the coming months and could push it even lower from its current 4.2%.’
The U.S. labor market is currently characterized by an unusual balance among constrained labor supply, modest job creation, and limited layoffs, which has enabled the unemployment rate to remain near historic lows.
This dynamic has prompted an increasing number of Federal Reserve policymakers to voice their concerns about inflation—which remains well above the Fed’s 2% target—more openly, rather than expressing worries about labor market resilience.
The Federal Reserve will hold a two-day monetary policy meeting next week. Following the release of the latest initial jobless claims data and a renewed surge in oil prices driven by the escalating conflict between the U.S. and Israel against Iran, interest rate futures indicate that markets now assign a probability of over 35% to a rate hike by the Fed at its upcoming meeting.
Editor/Rocky