Last week, the number of citizens who filled out new applications for unemployment benefits in the United States decreased.
The mentioned result is associated with a low level of layoffs. Against the background of the relevant data, concerns about the deterioration of the situation in the United States labor market have decreased.
The weekly jobless claims report from the US Labor Department on Thursday, September 5, also contains information that the number of unemployed citizens in the United States has fallen to the level last seen in mid-June. It is worth noting that the relevant data reduces the need for cutting interest rates by 50 basis points this month. The mentioned weekly report contains the most up-to-date information about the state of affairs in the United States economic system.
At the same time, it is known that in August in the US, private employers hired the smallest number of employees.
Among economists interviewed by the media, the dominant point of view is that in the current month, the central bank of the United States will decide to lower the cost of borrowing by a quarter point. Experts perceive the corresponding forecast as realistic because there is currently steady domestic demand in the US. Economists interviewed by the media also suggest that the expected interest rate cut in September will be the beginning of a cycle of consistent lowering of borrowing costs by the central bank of the United States.
It is worth noting that in July, an unexpected increase in the unemployment rate was recorded in the US. The corresponding figure was fixed at 4.3%. Against the background of this dynamic, anxiety about the prospects for the near future began to spread among investors. Also, the unexpected increase in the unemployment rate provoked increased concerns that a recession scenario would be implemented in the space of the economic system of the United States.
Christopher Rupkey, chief economist at FWDBONDS, says that there are currently signs of a slowdown in hiring in the US. In the relevant context, the expert clarified that the number of job openings is decreasing, but the recession scenario will not be realized until the downward dynamic is fixed concerning the number of payroll jobs. Separately, Christopher Rupkey noted that currently, it does not look like the Fed is behind the curve.
In the week ended August 31, initial claims for unemployment benefits in the United States decreased by 5,000, amounting to 227,000 seasonally adjusted. It is worth noting that the corresponding indicator is the lowest since the beginning of July. Economists interviewed by the media predicted that the number of initial claims for unemployment benefits for the week ending August 31st will amount to 230,000. This indicator had been bouncing within the mentioned mark since pulling back from an 11-month high in late July after the impact of seasonal factors, including Hurricane Beryl and the situation in the automotive industry, weakened.
Unadjusted claims fell by 3,352 to 189,389 last week. In this case, the significant increase recorded in Massachusetts was largely offset by the downward dynamic that was observed in New York, Texas, and some other regions of the United States.
Abiel Reinhart, an economist at JPMorgan, says that there was probably some residual seasonality boosting of the mentioned claims in the US at the beginning of the summer. According to the expert, the corresponding indicator, as last year, will show a decrease at the end of August and September, unless a more significant deterioration in the situation is recorded in the United States labor market.
It is worth noting that the data on claims for unemployment benefits echo the conclusions contained in the Fed’s Beige Book report, published on Wednesday, September 4. The central bank of the United States has characterized the unemployment rate as generally flat to up slightly in recent weeks. The mentioned report also contains information that several Federal Reserve districts have reported that some companies have reduced shifts and opening hours, left advertised vacancies unfilled, or cut headcounts due to attrition, although data on layoffs continue to be rare.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased by 22,000 to a seasonally adjusted 1.838 million for the week ending August 24. The corresponding indicator is the lowest since mid-June.
According to CME Group’s FedWatch Tool, the probability that at the meeting of officials of the central bank of the United States, which will be held on September 17-18, a decision will be made on cutting interest rates by half a point is 41%.
It is worth noting that recently there has been an increase in optimism about the prospects that in the current year, the Fed will begin to soften its monetary policy strategy, which implies lowering the cost of borrowing. The report from the Labor Department’s Bureau of Labor Statistics had a significant impact on the formation of corresponding expectations. In this case, it is implied that in the second quarter of the current year, against the background of a high level of worker productivity, unit labor costs showed an increased rate that turned out to be slower than preliminary expectations for the dynamic of the appropriate indicator.
Stocks were trading lower on Wall Street on Thursday. Stock indexes have faced difficulties. The corresponding state of affairs is the result of investors starting to get rid of risky assets. Also, there is currently what can be described as an increase in anxiety in the markets. The spread of the corresponding sentiments is associated with concerns about the prospects for further the dynamic of the state of affairs in the space of the economic system of the United States. These concerns intensified ahead of the publication of the main report on the situation in the US labor market, scheduled for Friday, September 6.
The tech-heavy benchmark fell 0.2%. It is worth noting that before the decline, this indicator showed an upward dynamic in the form of growth of more than 1% during the session.
The S&P 500 index was also on a downward trajectory. The corresponding indicator fell by 0.6%. The Dow Jones Industrial Average demonstrates a similar dynamic. This indicator fell by 0.8%. The Nasdaq Composite gained 0.25% after rising as much as 1.2%.
Arun Sai, senior multi-asset strategist at Pictet Asset Management, says that the current state of affairs is the peak of another mini-crisis caused by fears regarding the growth of the United States economy.
It is worth noting that the data released on Thursday on the situation in the US labor market, despite some blocks of positive information, are generally ambiguous. In this case, it implies the perception of the specified data as a kind of reflection of the current condition of the economic system of the United States. Doubts are nowadays circulating about the timeliness of the US central bank cutting interest rates in September. In the context of the relevant sentiment, an opinion has been formed that the start of the Fed’s monetary policy easing cycle this month may be premature. At the same time, in the United States, some experts have repeatedly said that there is a risk that the financial regulator will make a decision too late on lowering the cost of borrowing.
Private payrolls are showing the slowest growth rate in the last three years. Against the background of the corresponding tendency, concerns about the likelihood of a slowdown in the labor market have increased.
In recent weeks, the markets in the United States have shown a high level of sensitivity to the likelihood of economic growth. One of the manifestations of the corresponding state of affairs was the selloff on Tuesday, September 3, against the background of weak production data. The market will also be very closely monitoring the data on the labor market situation, which will be released on Friday. Particular interest will be directed to nonfarm payrolls in August. It is worth noting that the weak July report caused increased volatility and boosted fears about the recession.
Arun Sai says that any further deterioration in the labor market is bound to have consequences. According to the expert. the implementation of the corresponding scenario will provoke a decrease in demand.
It is worth noting that Thursday was a good day for some US stocks. For example, Tesla securities have risen in price by 4%. The corresponding dynamic was fixed after the company announced plans to launch full-fledged self-driving software in Europe and China early next year.
Shares of Frontier Communications fell by 8% on the background of the statement that Verizon has announced plans to acquire the company as part of the $20 billion deal.
The S&P 500 and Nasdaq Composite indexes closed lower for the second consecutive session.
Returning to the topic of the Fed’s monetary policy, which is the area of special attention from the markets, it is worth noting that the strategy of the central bank of the United States to raise interest rates turned out to be correct in terms of the goal, which was to counteract inflation. The financial regulator began to raise the cost of borrowing two years ago. These measures have allowed to cool inflation. Against the background of the corresponding result, the central bank of the United States shifted its focus to the other side of its dual mandate: maximizing employment. Fed Chairman Jerome Powell said last month that it was time to adjust monetary policy. This statement significantly strengthened expectations regarding the interest rate cut in September.
Christopher Larkin, managing director of Morgan Stanley’s digital brokerage product E*Trade, wrote in a note published on Thursday that markets are still trying to figure out whether the United States economy is slowing down too much and whether the Fed is lagging.
A third report from the Institute for Supply Management (ISM) witnessed a cooling in employment in the US services area. It is worth noting that this indicator still does not mean a sharp slowdown in the labor market. Companies that participated in the ISM survey reported filling vacancies and replacing contractors across all disciplines.
Michael Pearce, deputy chief US economist at Oxford Economics, says that the United States economy seems to be slowing down, although the pace of the corresponding process is gradual. Also, according to the expert, there are currently no signs of a recession.
