The number of Americans filing new applications for unemployment benefits fell more than expected last week, calming fears the labor market was unraveling and reinforcing that a gradual softening remains intact. Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, the largest drop in about 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week. It was a welcome reversal after last week's surprise sharp jump in jobless claims, and most likely reflects a fading in the impact from temporary motor vehicle plant shutdowns and Hurricane Beryl. The prior week's tally was revised up slightly to 250,000 from the previously reported 249,000.
U.S. stocks gained following the release, while benchmark Treasury yields rose back above 4%. The U.S. dollar (.DXY) also strengthened against a basket of currencies. "The talk of an imminent recession seems wide of the mark," said Marc Chandler, chief market strategist at Bannockburn Global Forex. Investors in interest rate futures contracts pared bets the Federal Reserve will start cutting borrowing costs next month with a bigger-than-usual 50-basis-point reduction to about a 58% probability from 70% before the release.
Market Overview:
- Jobless claims fell more than expected last week.
- U.S. stocks gained after the release of jobless claims data.
- Benchmark Treasury yields rose back above 4%.
Key Points:
- Jobless claims fell 17,000 to 233,000 for the week ended Aug. 3.
- The U.S. dollar strengthened against a basket of currencies.
- Investors pared bets on a 50-basis-point rate cut next month.
Looking Ahead:
- Monitoring upcoming labor market data for further trends.
- Potential impact of the Fed's September policy meeting.
- Continued analysis of economic indicators and market responses.
The Fed also closely monitors how jobless rolls compare to the size of the labor force to gauge the health of the jobs market. Growth in the labor force has largely kept pace with the gradual rise of those claiming jobless relief and is about where it was before the coronavirus pandemic. The U.S. central bank last week kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July, but policymakers signaled their intent to reduce borrowing costs at their next policy meeting in September.
However, the government's monthly nonfarm payrolls report last Friday showed job gains slowed markedly in July and the unemployment rate rose to 4.3%, alarming markets at that point that the labor market may be deteriorating at a pace that would call for strong action from the Fed. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 6,000 to a seasonally adjusted 1.875 million during the week ending July 27, the claims report showed, continuing an upward trend. That caused some economists to remain wary.
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