The latest government data revealed a notable decrease in weekly applications for unemployment insurance in the United States, contrary to predictions set forth by market analysts. For the week ending July 20, initial claims for unemployment benefits saw a decline of 10,000, settling at a total of 235,000.
This figure was below the anticipated consensus of 238,000, reflecting a surprising dip in jobless claims as reported by the US Department of Labor. In contrast, the previous week's reading was revised upward by 2,000 to a total of 245,000, ultimately tying for the highest level observed since August 12, 2023, as noted by Jefferies.
Though the week of July 20 marked a two-week low in initial claims, the four-week moving average experienced a slight uptick. According to Lindsey Piegza, Chief Economist at Stifel, the four-week moving average rose to 235,500, an increase of 250 claims from the previous week's average, which had itself been revised upward by 500 claims.
Notably, unadjusted claims decreased by a significant 55,502 week-over-week, bringing the total to 225,090. Continuing claims, which reflect the number of individuals still receiving unemployment benefits, totaled 1.85 million for the week concluded on July 13, marking a decrease of 9,000 from the previous week's adjusted figure, which was also revised downward by 7,000.
The Bloomberg consensus had projected these continuing claims at 1.87 million. Additionally, the four-week moving average for continuing claims reached approximately 1.85 million, the highest level observed since December 4, 2021, signaling a potential shift in the labor market dynamics, according to the DOL. Texas reported the most substantial increase in initial claims during the week closed on July 13, with 11,927 new applications.
This was followed by California, which added 6,284 claims, and Georgia, with an increase of 3,101 claims. Conversely, New Jersey experienced the largest decrease in claims, with a reduction of 1,532, trailed by Massachusetts and Indiana. As the market anticipates a potential interest rate cut by the Federal Open Market Committee (FOMC) in their upcoming September meeting, speculations abound regarding the economic implications of this decrease in unemployment claims.
The CME FedWatch tool indicates a growing belief in the market that the FOMC will act, however, Piegza cautions that a "very compelling case would have to be made in the July and August data" for this to transpire. The evolving landscape of unemployment claims and broader economic indicators will be essential considerations for policymakers moving forward..