US labor market data in focus!
Thursday's published data show that the number of Americans claiming to receive unemployment benefits fell to a two-month low in the week ended August 26, while layoffs also dropped in August.
After Wednesdays JOLTs numbers, today's data increased the positive sentiment of the US labor market to confirm that the Federal Reserve would need to continue aggressively raising interest rates to slow the overhit economy.
In line with decreasing demand to get unemployment benefits, the survey of Institute for Supply Management (ISM) numbers on Thursday also showed that employment in the manufacturing sector had a sharp rebound in August.
The detailed numbers show that layoffs are getting less and less, which means employers still believe in a rebound after the short-term slowdown. That is why they do not want to witness the problem of finding workers again, the unpleasant challenge they experienced last year.
Let us review the latest published data from the US labor market. On Tuesday, JOLTs numbers showed that there were 11.2 million job openings at the end of July, meaning at least two jobs for every unemployed person.
Then we had ADP numbers on Wednesday. The US "small non-agricultural"-ADP employment performance in August was not very satisfactory, only recording an increase of 132,000, far less than the market's expected increase of 300,000 and the previous month of 358,000. It was also the smallest number of new jobs created by US companies since the beginning of 2021.
Moreover, on Thursday, US labor department data showed that Initial Jobless Claims for unemployment benefits decreased to 232,000 for the week ended August 26. This claim for state unemployment benefits was also at the lowest since late June. Continuing Jobless claims usually published with one week delay increased by 26,000 to 1.438 million in the week ending August 19.
Furthermore, with these mixed numbers from the US labor market, overall, we can say that it is strong and can handle stricter monetary policies. Overall estimates are that Labor Statistics (BLS) report on Friday, September 2, indicates that there were 300,000 hiring in US businesses in August. Meanwhile, the Unemployment Rate is expected to remain steady at 3.5%.
If data become as expected or even better, it says that the labor market remains tight, emphasizing that Fed should significantly raise the interest rate to curb inflation. A few days ago, and after personal income and spending data were published, I mentioned that weaker economic data and decreasing incomes could slow down the resignations and even claims for unemployment benefits, as increasing household costs will make them go out and seek jobs.
However, suppose the economy adds substantially more jobs, with any numbers more than 300K+, and increasing wages. In that case, it could swing the argument in favor of a 75 bps rate hike, as FED officials repeatedly said their focus is to control inflation, even if it leads the economy to slow down in the short term. Moreover, that means more pressure on the stock market and fuel for the US dollar's bulls. Conversely, weaker-than-expected employment numbers can slow down the USD index and increase the stock markets, as investors will rely on less aggressive FED.
