US weekly jobless claims rebound ahead of BLS's employment situation report

Following last week’s historic drop in weekly (initial) jobless claims, marking the sharpest slide in 20 months, the closely-watched measure rebounded to 248,000 in the week ending July 1, potentially flagging a slowing labour market.

Initial jobless claims track the number of people who have applied for unemployment insurance benefits for the very first time.

These are considered a proxy for layoffs and a crucial leading metric to gauge the health of the labour market.

The report was above consensus estimates of 245,000 as reported by TradingEconomics.com, but well below the weeks ending 4^th June, 11^th June, and 18^th June, which were elevated at 262,000; 264,000; and 265,000, respectively.

The jump this week was not so significant to be causing any major concerns about the resilience of the economy.

The CMEFedWatch gauge suggests a near-certainty of an additional hike in the July meeting, with a 92.4% chance of a 25-bps rise, at the time of writing.

The June data points suggested that the labour market may be getting weaker, with unemployment reaching 3.7% and heavy tech-sector layoffs.

Last week’s claims which fell to 239,000 were revised further downward to 236,000.

Jobless Claims 4-week Average

The 4-week average slipped from 256.75 K in the previous report to 253.25K, coming in under forecasts of 258K as published by TradingEconomics.com.

This marked the first decline after four consecutive increases but remained above the week ending June 11^th which was reported at 247.25K.

The previous week’s data was revised downwards from the initial figure of 257.5K.

The unexpectedly sharp drop in initial claims numbers in the last report will likely cap the 4-week moving average in the coming weeks.

United States Continuing Jobless Claims

Continuing claims are the total number of people who have already been receiving unemployment benefits.

Continuing jobless claims lag the initial jobless numbers by a week, and slipped to 1,720,000, while the previous week’s data was revised significantly lower from 1,742,000 to 1,733,000.

The latest reading was sharply below consensus expectations of 1745K as reported by TradingEconomics.com

Interestingly, continuing claims are showing a downtrend over the past four weeks, having declined each week from 1,772,000 in the week ending 4^th June.

Signals of a weakening labour market

Looking at the full-year picture, jobless claims have largely continued their steady march higher, following heavy layoffs, particularly in interest-rate sensitive sectors such as technology, real estate, and finance.

As interest rates continue to rise, we can expect to see more weakness in these sectors, resulting in additional job cuts.

According to data from layoffs.fyi, the tech sector job losses in June were higher but more concentrated than those in May.

However, with interest rates almost certainly heading higher, claims should also be expected to trend higher for the foreseeable future.

Expectations

The market will be closely watching tomorrow’s employment situation report with the unemployment rate expected to fall to 3.6% from the current 3.7%, while nonfarm payrolls are slated to rise by 224K.

A report on last month’s BLS report entitled ‘Puzzling “BLS Wonderland” report does not signal a strong labour market: A deep dive’ is available here.