US labour market strong; Q2 GDP growth expected to be revised

WASHINGTON: The number of Americans filing applications for unemployment benefits unexpectedly fell last week, suggesting the labour market remains strong even as the economy is slowing.
The jobless claims report from the Labour Department on Thursday, however, does not fully account for the impact of the recent escalation in the bitter trade war between the United States and China, which has led to an inversion of the US Treasury yield curve and raised the risk of a recession.
Worries about the trade war’s effect on the economic expansion, the longest on record, prompted the Federal Reserve to cut interest rates last week for the first time since 2008.
Financial markets have fully priced in another rate cut next month. Expectations for a 50-basis-point cut at the Fed’s September 17-18 policy meeting have also risen.
“Initial claims have been sending a reasonably upbeat message about conditions in the labour market,” said Daniel Silver, an economist at JPMorgan in New York. “Today’s report likely doesn’t contain much information about the period since the recent escalations in trade tensions.”
Initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 209,000 for the week ended August 3, the government said. Economists polled by Reuters had forecast claims would be unchanged at 215,000 in the latest week.
“Though equity market volatility and low bond yields are driving pessimism about the economic outlook… we would have to see initial claims sustain a rise to the 250,000 level to become concerned about recession,” said John Ryding, chief economist at RDQ Economics in New York.
US stocks were trading higher partly due to unexpectedly better Chinese data and a steadying of the yuan, which provided some relief to investors alarmed by the rise in US-China trade tensions. The dollar was little changed against a basket of currencies, while US Treasury prices fell.
Last week’s drop in claims pushed them to the lower end of their 193,000-244,000 range for this year. The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, edged up 250 to 212,250 last week.
Though hiring has slowed, the pace of job gains remains well above the roughly 100,000 needed per month to keep up with growth in the working-age population.
Nonfarm payrolls increased by 164,000 jobs in July, down from 193,000 in June. Job growth over the last three months averaged 140,000 per month, the lowest in nearly two years, compared to 223,000 in 2018. The moderation in employment growth partly reflects a shortage of workers.
“While net employment growth depends on gross hiring as well as the pace of layoffs, and the trend in payrolls gains may have moderated a bit, major weakening in employment growth is invariably associated with an uptrend in claims,” said Jim O’Sullivan, chief US economist at High Frequency Economics in White Plains, New York.
The economy grew at a 2.1 per cent annualised rate in the second quarter, slowing from the first quarter’s brisk 3.1 per cent pace. Growth is seen below a 2.0 per cent rate in the July-September quarter. — Reuters