Increasing Jobless Claims May Signal Another Softish Jobs Report

Increasing Jobless Claims May Signal Another Softish Jobs Report

• Treasury yields are a bit higher this morning as investors process the latest Fed speak, continue to handicap election scenarios, and look ahead to the weekend. With no new economic reports due today it will be one of watching Fed speak and election headlines for direction, but it should be a rangebound day, assuming a black swan doesn’t arrive on a slow, summer Friday.  Currently, the 10yr note is yielding 4.22%, up 3bp on the day, and the 2yr is yielding 4.50%, up 4bp on the day.

 

• Earlier this week, it was more patient talk from New York Fed President John Williams willing to wait for a couple more encouraging inflation reports before a possible September rate cut. Yesterday, the message was much the same from Fed Governor Chris Waller, but he sounded more uncertain the data would fully cooperate to support a cut in September. It was more an admission that reports rarely line up cleanly to make a case clear, rather than a concern that inflation is poised to surge.

 

• Today, the Fed speak includes New York Fed President John Williams again and Atlanta Fed President Raphael Bostic. We haven’t heard from Bostic this week, but we suspect based on his earlier comments that he’ll also be looking for a couple more friendly inflation reports to buttress the case for a September cut.

 

• The initial jobless claims figures for the week ending July 13 exceeded the 229 thousand expected with 243 thousand claims. That’s the highest claims figure dating to June 8th when it matched the 243 thousand. One must go back to August 12, 2023, to find a higher claims amount. What’s important about this week is it’s also survey week for July’s nonfarm payroll estimate. Recall, last month’s softish jobs report was preceded by a higher-than-expected 239 thousand jobless claims figure. Will this month’s even higher claims portend another moderation in labor market momentum?

 

• Also, the continuing jobless claims figure is climbing as well. It hit 1.867 million vs. 1.852 million the prior week and is the highest since November 2021 (see graph below). This points to workers finding it tougher to secure new employment which is just another indication of a slowing labor market.

 

• The market is quickly moving on from trying to time the first cut to estimating where the cutting will stop. With two cuts this year (Sept. and Dec.), and then quarterly cuts next year, that would put the funds rate at 4.00% by year-end 2025. The one fly in that ointment could be if Trump wins and the Republicans sweep Congress, expect some expansive, splashy fiscal stimulus to open the new Administration. The impact would most likely be a 2H25 event. That could stay the Fed’s rate-cutting hand while they assess the growth/inflation implications of the additional fiscal stimulus. That’s not an issue for today, but one to keep in mind as we get closer to the November election and the outcome.

 

• Finally, we must mention that, in another nod to a slowing economy, the latest Beige Book pointed to more districts noting growth as slight to modest versus the prior report. Then again, the Atlanta Fed’s GDPNow forecast for second quarter was bumped up from 2.5% to 2.7%. That certainly doesn’t signal a slowing economy. So, maybe the signs of slowing are more a third quarter event. We’ll just mention once again that writing off the US consumer has been a widow-maker trade for a while, so we shall see if that is the case again.

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Continuing Jobless Claims – Near Three Year High

Source: FRED St. Louis Federal Reserve

 

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