U.S. jobless claims increase sharply: ‘recession could be milder’

The Russell 2000 index is slightly in the red today even though the Department of Labour said unemployment claims increased materially in the week that ended on June 3^rd.

Is the U.S. economy headed for a recession?

Jobless claims climbed to 261,000 (seasonally adjusted) last week suggesting the labour market is finally giving up in the face of aggressive rate hikes. Economists, in comparison, had forecast a slight increase from the previous period to 235,000 only.

Still, Quincy Krosby – the Chief Global Strategist of LPL Financial sees reasons to believe that the United States will succeed in avoiding a deep recession.

Steady interest in small-caps suggests the economy is more resilient than the headlines imply, or that a recession could be milder than initially projected.

The Russell 2000 has gained nearly 10% in just over a month.

What fuelled an increase in unemployment claims?

The Department of Labour, on Thursday, did not name a specific factor that may have contributed to a sharp increase in the weekly jobless claims.

Through May 20^th, 1.635 million people were receiving unemployment benefits – a 27.4% year-on-year increase. Commenting further on what the U.S. small-cap stocks may be signalling, Krosby said in a note obtained by Invezz:

Seeing the index gain support suggests we’re finally moving beyond the worry that another bank-related headline will throw financial markets into a tailspin.

Markets are currently pricing a pause at the FOMC meeting scheduled for next week.