Weekly Jobless Claims Decrease to a 9-Month Low

Last week, the number of Americans filing new claims for unemployment benefits dropped to the lowest level in nine months. This indicates that strong job growth has persisted in October amidst a tight labor market.

The unexpected decline in initial jobless claims reported by the Labor Department on Thursday is consistent with solid retail sales and factory production in September, highlighting sustained momentum in the economy. This positive economic data further strengthens the expectation that the Federal Reserve may keep interest rates higher for a longer period. Financial markets have already adjusted their projections and are not discounting a rate hike next month due to soaring U.S. Treasury yields.

“Companies on earnings calls may warn about the outlook and risks ahead, but they are still holding on tight to their workers as good help is increasingly hard to find,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

The report revealed that initial claims for state unemployment benefits decreased by 13,000 to a seasonally adjusted 198,000 for the week ending October 14. This is the lowest level since January and surpasses economists’ expectations of 212,000 claims for the same week. The unadjusted claims also declined by 18,561 to 181,181, with notable decreases in Texas, New York, New Jersey, Georgia, and California.

Although the labor market is gradually cooling, conditions remain tight, as demonstrated by claims hovering at the low end of their range for this year. Furthermore, the limited impact of United Auto Workers (UAW) strikes on supply chains and a notable rise in Tennessee claims indicate the resilience of the labor market.

The Fed’s Beige Book report, released on Wednesday, indicated that “labor market tightness continued to ease across the nation” in early October, suggesting cooling wage pressure. However, the report also pointed out ongoing challenges in recruiting and hiring skilled tradespeople.

Despite the U.S. central bank’s benchmark overnight interest rate increases since March 2022, the labor market continues to show strength. The financial market’s expectation for the Fed to leave interest rates unchanged at the upcoming policy meeting further solidifies this observation.

Looking forward, the speech by Fed Chair Jerome Powell at the Economic Club of New York will likely provide fresh insights into the future course of monetary policy. The resilience of the economy, as indicated by a rise in longer-dated bond yields and strong labor market performance, is driving consumer spending and overall economic growth.

Depressed Home Sales

While the broader economy is weathering the high interest rate environment, the housing market is struggling, as evidenced by a drop in existing home sales. The National Association of Realtors reported a 2.0% decrease in existing home sales last month, reaching the lowest level since October 2010. Surging mortgage rates and limited supply have reduced affordability for many first-time buyers.

The average rate on the popular 30-year fixed mortgage is above 7.5%, suggesting that home resales are likely to decline further. Experts argue that a sharp drop in mortgage rates and a surge in inventory are needed to improve affordability and provide relief to the struggling U.S. housing market.

Subdued Business Sentiment

A report from the Philadelphia Fed revealed that business conditions in the Mid-Atlantic region remained subdued in October, although manufacturers anticipate improvements in the next six months. Firms in the region reported mostly steady employment this month.

The claims report for the week was conducted during the government’s survey of business establishments for the nonfarm payrolls component of the October employment report. Claims decreased between the September and October survey periods. Next week’s data on the number of people receiving benefits after an initial week of aid will offer more insight into the health of the labor market in October.

In conclusion, the recent decline in jobless claims coupled with other positive economic indicators suggests that the labor market is staying strong, providing support for the economy amidst high interest rates. However, the housing market remains weak, and business sentiment is still subdued in certain regions.

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