US Jobless Claims Fall, Complicating Fed's Next Move
A drop in initial claims to 216,000 is offset by multi-year highs in continuing claims, presenting a mixed view of the US labor market.
A surprise dip in the number of Americans filing for new unemployment benefits has clouded the outlook for Federal Reserve monetary policy, presenting a picture of a labor market that is both resilient and showing signs of strain.
Initial jobless claims for the week ending November 22 fell to 216,000 on a seasonally adjusted basis, according to a report from the Department of Labor. The figure came in below economists' consensus estimate of 225,000 and marks a decline from the previous week’s revised 222,000, suggesting layoffs remain low despite higher interest rates.
While the headline number points to continued strength, a deeper look into the data reveals a more complex situation. Continuing claims, which measure the number of people receiving unemployment benefits for more than a week, have been steadily climbing. They recently rose to 1.974 million, marking the highest level since November 2021. This divergence suggests that while fewer people are losing their jobs, those who are unemployed are finding it increasingly difficult to secure new positions, a potential sign of a cooling hiring market.
The mixed signals present a fresh challenge for the Federal Reserve as it gauges the economy's strength. On one hand, the low level of initial claims could support the case for keeping interest rates higher for longer to ensure inflation is fully contained. A tight labor market can fuel wage growth, which in turn can put upward pressure on prices.
On the other hand, the persistent rise in continuing claims may indicate that the cumulative effect of the Fed's aggressive rate-hiking cycle is beginning to weigh on the job market. This could give more dovish policymakers reason to argue for an earlier pivot towards rate cuts to avoid an excessive economic slowdown. As the investment management firm Nuveen noted in a recent update, the Fed is likely to remain in a state of "patience and data dependency" as it parses such conflicting reports.
Investor reaction has been cautious as traders recalibrate expectations for a potential rate cut from the central bank. Hopes for a policy easing at the Fed's December meeting have already faded significantly in recent weeks following more hawkish commentary from officials. Major US stock indices like the S&P 500 have reflected this uncertainty, coming under pressure as the prospect of prolonged restrictive policy weighs on corporate valuations.
This latest jobs data arrives amid a backdrop of moderating inflation, which cooled to an annual rate of 3% in September. While price pressures have eased considerably from their peaks, the Fed remains focused on its long-term 2% target. The central bank's next decision will hinge on how it balances the risk of resurgent inflation against the risk of stifling economic growth. Market participants will now turn their attention to upcoming reports on consumer prices and the broader employment situation for further clues on the Fed's likely path forward.