The jobless claims report for the week ended Jan. 24 showed that the underlying labor market trend remained fairly resilient.
The Labor Department’s weekly jobless claims data for the week ended Jan. 24 showed a small decline to 209,000, from the previous week’s figure that was upwardly adjusted by 10,000 to 200,000. Economists expected the number to have risen to 206,000 from last week’s unrevised reading of 200,000.
The claims included last Monday’s holiday in observance of Martin Luther King Jr. Day.
What Do Underlying Trends Reveal About Labor Market Health? The Labor Department data showed that the four-week average, which smooths the fluctuations, rose 2,250 to 206,250 from the previous week’s upwardly revised reading of 204,000.
Source: Labor Department
Continuing claims or insured employment, which is calculated with a lag, came in at 1.827 million for the week ended Jan.17 versus expectations of 1.86 million and down 38,000 from the previous week’s revised level. The DOL noted that the insured employment, referring to the number of individuals currently receiving unemployment insurance benefits who have already filed an initial claim, dropped to the lowest level since Sept. 21, 2024.
Fed Turns Positive: Wednesday after announcing a pause decision, aligning with expectations, the Federal Reserve tinkered with its monetary policy statement by dropping the phrase which stated that it “judges that downside risks to employment rose in recent months.”
In its commentary about the labor market in the recent statement, the Fed said, “Job gains have remained low, and the unemployment rate has shown some signs of stabilization.”
In the press conference that followed, Fed Chair Jerome Powell remained non-committal about the policy stance going forward but said future decisions would be made “meeting by meeting based on the incoming data and the implications for it and the outlook and the balance of risks.”
So…What Now For Rates? Most economists have factored in a pause for the near term. Allianz Investment Management Senior Investment Strategist Charlie Ripley said, “Policy rates are much closer to neutral against the current backdrop and it's time for a long pause.” “Labor conditions are not worsening, growth has accelerated, and inflation has steadied for now.”
Northlight Asset Management Chief Investment Officer Chris Zaccarelli said, “We think that rate cuts will be backend loaded (e.g. not until after the first 5 months of the year) and that the stock market will need to rally on earnings growth, given that the tailwind of lower rates has been removed, and with valuations close to historic highs, it’s less likely that multiple expansion can push up prices.”
More details about the Federal Open Market Committee’s (FOMC) thinking on the policy rate will emerge when the central bank releases the minutes of the January meeting three weeks from now. The next meeting is not scheduled until March 17-18, when the Fed will also release the Summary of Economic Projections, which comprises its updated growth, inflation and jobless rate forecasts and the dot-plot chart. The dot-plot chart maps the Fed officials’s expectations regarding rate trajectory.
Why Futures Traders Are Paying Close Attention: A strong labor market would keep the Fed from lowering interest rates as much as traders would desire. This could prove positive for the dollar and in turn negative for dollar-denominated commodities. That said, metals, both base and precious metals, levered to industrial demand could still find feet, provided economic growth holds up. Treasuries will likely fall, provided the Fed goes hawkish, sending yields higher, particularly at the front-end of the curve.
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