U.S. Jobless Claims Near Historic Lows

Less people filed for unemployment benefits and insurance in the US last week than expected, according to the latest reports from the Department of Labor. The number of new jobless claims fell well below analyst predictions, hitting near-historic lows and giving further credence to the idea that the labor market is healthier than it appeared in May.

The week’s great numbers, along with an increasingly positive four-week moving average, have backed recent comments by Federal Reserve Chair Janet Yellen that the labor market is indeed improving. Wages have finally started to rise as less people are laid off and overall the health of the job market could help push for a rate hike sooner than later.

Labor Market Improving

New claims for unemployment benefits and insurance fell significantly for the week ending on June 18th according to the Department of Labor. The report points to a resilient labor market despite May’s disappointing payrolls report, which showed that new hires came in well below the previous three months’ average—already a dip from the prior year. Initial jobless claims fell by 18,000 for the week to a seasonally adjusted 259,000, dropping from the prior week’s unrevised 277,000 claims and comfortably printing below analyst expectations of 270,000 new claims.

The claims levels are close to a 43-year low that was reached in March of this year. The four-week moving average of jobless claims—which is used to eliminate the volatility that can arise on a week to week basis—also improved slightly to 267,000 from 269,250 the previous week. The readings mark an important milestone for the US labor market. Jobless claims have now spent 68-consecutive weeks under the 300,000 mark, the threshold that is usually used to indicate a healthy job market. It is also the longest streak under the threshold since the early 1970s.

On a month over month basis, the four-week moving average also improved from May to June, contracting by 8,750 over the month, which points towards an improving labor market despite the abnormally small increase in payrolls over the previous month. The recent jobless claims could indicate that the slowdown experienced in May’s payrolls report could be fading.

The report signals that May—as Yellen indicated in her testimony before congress this week—was not necessarily a developing trend, but more likely a transitory result. Overall, the job market in the US has been on an upward trajectory in 2016, with unemployment remaining under the 5.00% mark and wages finally starting to see an improvement after months of remaining weak.  Overall, wages have improved consistently if modestly over the previous twelve months, but the effects are finally starting to impact the economy on a positive level.

Good News for the Fed

The week’s jobless claims report is good news for the Fed, which has been surprisingly dovish in recent weeks after declining to raise the benchmark rates at the FOMC meeting in June after months of expectations that they would. In her testimony, Yellen pointed toward a job market that has been improving at less than desired speeds. While she has repeatedly signaled that the labor market has been strong, recent language has indicated that the Fed is more cautious than optimistic regarding the medium-to-long term view of the labor market’s strength. The Fed also cautioned that May’s non-farm payrolls report was not necessarily the sole cause for concern in abstaining from a rate hike, indicating that extrapolating from a single report downplays the overall strength of the labor market.

Going forward, labor market developments and inflation figures will be a key factor in any further movement on monetary policy.With nonfarm payrolls around the corner, sentiment towards future rate hikes could quickly shift.Financial markets in the US trended higher on Thursday following the news, with the Nasdaq Composite surging 1.86%, followed by 1.69% rally in the S&P 500 and the Dow Jones Industrial Average climbing 1.29%. The Dollar Index Spot, however, was trending slightly lower, sliding -0.51%.