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 on Thursday showing retail sales increased by the most in nearly one and a half 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.
“Fed officials need not worry themselves to death about the outlook because the downside risks to the economy are fading fast with fewer job layoffs and robust consumer spending,” said Christopher Rupkey, chief economist at FWDBONDS. “The economy is not going off the rails.”
Initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 227,000 for the week ended Aug. 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 market is slowing as businesses scale back on hiring, failing to keep up with an immigration-induced surge in labor 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 September 17-18 policy meeting to 27.5 per cent from 41.5 per cent before the data, according to CME Group’s FedWatch tool. They saw a 72.5 per cent chance of a 25-basis-point rate cut, up from 58.5 per cent earlier.
The Fed has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent 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.
Broad sales gains
A separate report from the Commerce Department’s Census Bureau showed retail sales jumped 1.0 per cent in July, the largest increase since January 2023, after a downwardly revised 0.2 per cent drop in June. Economists had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.3 per cent after previously being reported as unchanged in June.
Retail sales increased 2.7 per cent 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 3.6 per cent, reversing a 3.4 per cent drop in June that was blamed on a cyberattack.
Online store sales gained 0.2 per cent after jumping 2.2 per cent in June. Sales at gasoline stations edged up 0.1 per cent. Building material and garden equipment store sales increased 0.9 per cent.
Sales at food services and drinking places, the only services component in the report, rose 0.3 per cent after edging up 0.1 per cent in June. Economists view dining out as a key indicator of household finances.
Furniture store sales advanced 0.5 per cent. Receipts at electronics and appliance outlets vaulted 1.6 per cent. But consumers spent less at clothing retailers as well as sporting goods, hobby, musical instrument and book stores.
Retail sales excluding automobiles, gasoline, building materials and food services rose 0.3 per cent last month after advancing by an unrevised 0.9 per cent in June.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. The strong data put retail sales on a solid footing at the start of the third quarter, despite last month’s marginal gain.