The number of Americans filing new applications for unemployment benefits dropped to a one month-low last week, suggesting an orderly labour market slowdown remained in place, and dashing financial market hopes that the Federal Reserve could cut interest rates by 50 basis points next month.
The economy’s resilience was reinforced by other data yesterday showing retail sales increased by the most in nearly 1-1/2 years in July. Investors have been on edge after a jump in the unemployment rate to a near three-year high of 4.3 per cent in July sparked fears that the economy was either in recession or nearing a downturn, concerns not shared by most economists.
Initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 227,000 for the week ended August 10, the Labor Department said. Economists polled by Reuters had forecast 235,000 claims for the latest week.
The second straight weekly decline erased the increase in late July, which had boosted claims to an 11-month high.
Claims had risen last month, blamed on temporary motor vehicle plant shutdowns and disruptions caused by Hurricane Beryl in Texas. Layoffs remain low by historic standards.
The labour tmarket is slowing as businesses scale back on hiring, failing to keep up with an immigration-induced surge in labour supply. The US central bank’s 525 basis points worth of rate hikes in 2022 and 2023 are curbing demand.
Financial markets lowered the odds of a half-percentage-point rate reduction at the Fed’s Sept. 17-18 policy meeting to 27.5pc from 41.5pc before the data, according to CME Group’s FedWatch tool. They saw a 72.5pc chance of a 25-basis-point rate cut, up from 58.5pc earlier.
The Fed has maintained its benchmark overnight interest rate in the current 5.25pc-5.50pc range for a year.
The dollar rose against a basket of currencies on the data, while Treasury prices fell.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 7,000 to a seasonally adjusted 1.864 million during the week ending Aug. 3, the claims report showed. The so-called continued claims are near levels last seen in late 2021, indicating that more people are experiencing longer bouts of unemployment.
A separate report from the Commerce Department’s Census Bureau showed retail sales jumped 1.0pc in July, the largest increase since January 2023, after a downwardly revised 0.2pc drop in June. Economists had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.3pc after previously being reported as unchanged in June.
Retail sales increased 2.7pc year-on-year in July. Consumers are maintaining spending by bargain hunting and trading down to lower-priced substitutes.
Receipts at motor vehicle and parts dealers rebounded 3.6pc, reversing a 3.4pc drop in June that was blamed on a cyberattack.
Online store sales gained 0.2pc after jumping 2.2pc in June. Sales at gasoline stations edged up 0.1pc. Building material and garden equipment store sales increased 0.9pc.
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