Mixed labor signals and steady hiring trends, alongside geopolitical risks and inflation uncertainty, are likely to keep the Federal Reserve cautious and delay potential interest rate cuts.
The latest labor market statistics released Thursday presented a mixed signal, with the weekly jobless claims rising more than expected, while continuing claims fell sharply.
Claims Rise: The number of individuals who filed for unemployment benefits for the first time climbed 16,000 to 219,000 in the week ended April 9, the Labor Department stated in its report. Economists, on average, expected claims to have risen to 210,000 from the 203,000 initially reported for the previous week.
The four-week average that smooths volatility was at 209,500, up 1,500 from the previous week’s revised average of 208,000.
Seasonally Adjusted Initial Claims
Source: Labor Department
Continuing claims, which are calculated with a week’s lag, were at 1.794 million in the week ended March 28, down 38,000 from the previous week’s revised level and lower than the 1.840 million consensus estimate. This metric refers to the total number of people who are currently receiving unemployment insurance benefits and have filed for them for at least two consecutive weeks.
RBC Capital Markets noted that jobless claims have largely held steady throughout the first quarter, as firms facing uncertainty paralysis in the midst of simultaneous oil and trade shocks opt not to lay staff off. “In the current environment, firms can opt to reduce headcount without laying staff off by choosing not to backfill roles left vacated by retirees,” the firm stated.
Read-Across for Rates: The Federal Reserve charts out its monetary policy course, keeping in view its dual mandate, namely ensuring stable prices and maximum employment.
Recent data point to an improvement in labor market conditions. The U.S. economy added a better-than-expected 178,000 jobs in March, reversing the 133,000 job losses seen in February. The unemployment rate ticked down 0.1 points to 4.3%.
The minutes of the March Federal Open Market Committee released Wednesday showed that a majority of the participants expected the unemployment rate to remain little changed and for net job creation and labor force growth to remain low.
The vast majority of participants judged that risks to the employment side of the mandate were skewed to the downside. Most participants highlighted the risk that a protracted conflict in the Middle East could weigh on business sentiment and further reduce hiring.
Unless there is renewed weakness in the labor market, the Fed may refrain from reducing rates, especially as the inflation path remains uncertain in the wake of the US-Iran conflict, which has sent energy prices spiraling higher.
Read Next: Wall Street's Relief Rally at Risk: Stock Futures Slip as Iran Ceasefire Blame Game Escalates