In a surprising turn of events, weekly applications for unemployment insurance in the United States have increased, as disclosed by government data on Thursday. This uptick comes at a critical time when the Federal Reserve is poised to initiate a reduction in interest rates next week. According to statistics from the Department of Labor, the seasonally adjusted number of initial claims experienced a rise of 2,000, reaching a total of 230,000 for the week ending on September 7.
Analysts had anticipated a lower figure of around 227,000, as noted in a survey conducted by Bloomberg. To add to the volatility, the previous week's figures were revised upwards by 1,000 to 228,000, indicating a trend that is worth monitoring closely. The four-week moving average also reflects this rising trend, coming in at 230,750, which is an increase of 500 from the prior average that underwent a revision upwards by 250.
In terms of unadjusted claims, there was a notable drop of 12,968 on a weekly basis, resulting in a new total of 177,663. Commenting on the recent developments, Nancy Vanden Houten, Senior US Economist at Oxford Economics, conveyed her insights via an email to MT Newswires, stating, "After some noise earlier in the summer, initial jobless claims have settled into a tight range over the last several weeks." For the week that concluded on August 31, seasonally adjusted continuing claims amounted to 1.85 million, which aligns with the Bloomberg consensus.
Continuing claims saw an increase of 5,000 when compared to the previous week's average, which itself had been revised up by 7,000. The four-week moving average in this instance came in at 1.85 million, marking a decrease of 2,250 from the prior week's upwardly revised average, as reported by the Department of Labor. Vanden Houten added, "We expect continued claims, which track initial claims, to drift a little lower in the weeks ahead." Delving into state-specific trends, Massachusetts recorded the sharpest surge in initial claims for the week ending August 31, witnessing an increase of 2,230.
This was followed closely by Wisconsin and Ohio, while Texas experienced the largest decline in claims, with a drop of 1,396, succeeded by New York and North Dakota. In a broader context, the Bureau of Labor Statistics disclosed on Wednesday that US consumer inflation rose as expected in August on a month-over-month basis.
However, it is important to note that this year's annual inflation has logged its smallest increase since February 2021. Additionally, recent government data revealed that the economy added fewer jobs than analysts had predicted for August, with the unemployment rate experiencing a slight decrease. With the Federal Reserve set to meet next week, they have pledged to implement a rate cut, primarily as a precautionary measure to shield against potential weaknesses in the labor market.
Nevertheless, Vanden Houten emphasized that the current claims data does not support more than a modest cut of 25 basis points, which remains the baseline forecast. Market indicators point to approximately an 85% probability that the Fed will opt to lower its benchmark lending rate by 25 basis points on September 18.
The remaining probability favors a more aggressive reduction of 50 basis points, based on insights from the CME FedWatch tool..