Washington (TIP)- The number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs dropped to an 11-month low in July as labor market conditions remain tight. The labor market has largely weathered 525 basis points in interest rate hikes from the Federal Reserve since March 2022, and likely delivered another month of strong employment gains in July. Despite labor market tightness, the inflation outlook continues to improve.
Other data from the Labor Department on Thursday showed a marked slowdown in labor costs in the second quarter, thanks to a sharp rebound in worker productivity. That added to reports last month showing a significant moderation in annual inflation in June. Labor market strength and receding inflation are fanning optimism that the economy could avoid a recession.
“Recession risk is receding,” said Bill Adams, chief economist at Comerica Bank in Dallas.
Initial claims for state unemployment benefits increased 6,000 to a seasonally adjusted 227,000 for the week ended July 29, the Labor Department said. The increase was in line with economists’ expectations.
Claims are in the lower end of their 194,000-265,000 range for this year, in part benefiting from difficulties adjusting the data for seasonal patterns.
Automakers typically idle plants in July to retool for new models. But these temporary closures do not always happen around the same time, which could throw off the model the government uses to strip out seasonal fluctuations from the data.
Unadjusted claims dropped 8,485 to 205,012 last week. Filings fell sharply in California and Ohio. There were also notable decreases in Texas and Georgia. These more than offset a sharp rise in Missouri.
Aside from the technical issues, the overall labor market remains solid as employers hoard workers after struggling to find labor during the COVID-19 pandemic. While there have been high-profile layoffs in the technology and finance sectors, small businesses are still boosting headcount after being squeezed out by large enterprises snapping up workers.
U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
US stocks: Wall Street tumbles to its worst loss in months
Wall Street tumbled to its worst drop in months on Wednesday, Aug 2, as its torrid rally that critics called overdone lost more momentum.
The S&P 500 sank 1.4% for its sharpest tumble since April. It was the second straight loss for the index after it hit a 16-month high last week.
The Dow Jones Industrial Average dropped 348 points, or 1%, while the Nasdaq composite fell 2.2%.
Prices were mixed in the bond market after Fitch Ratings cut the credit rating of the U.S. government. The repeated standoffs in Congress about whether to allow a default on the U.S. debt were just some of the reasons for Fitch’s cut. The downgrade strikes at the core of the global financial system because U.S. Treasurys are considered some of the safest possible investments.
Fitch’s move follows a similar one by Standard & Poor’s in 2011, one that coincided with a European debt crisis to help cause stocks and bonds around the world to swing violently. So far, this most recent downgrade has caused less drama across markets.