Investors continue to pore over each US economic data release searching for any signs that could suggest either the US economy is sliding into recession or that inflation remains too strong to justify the series of interest rate cuts that markets have now penciled in. With the US Federal Reserve and other central banks generally remaining data-dependent for policy decisions, a lot is riding on the data.
Last week’s reports on the US labour market supported the view that while growth may be slowing, a recession is not imminent. New applications for state unemployment aid, a proxy for layoffs, fell to their lowest in almost four months, suggesting the labour market remains resilient despite tighter monetary policy.
Initial jobless claims totalled 202 000 in the week ending January 6 on a seasonally adjusted basis, the US labour department said on 11 January, marking their lowest level since mid-October. That was below consensus expectations for 210 000 new claims and the previous week’s upwardly revised level of 203 000.
Continuing jobless claims, which measure the number of Americans actively receiving unemployment aid, decreased to 1.83 million in the week ending December 30, from 1.87 million the previous week.
US continuing claims for unemployment insurance have drifted up recently, but initial claims have remained low with no upward momentum. This suggests that while those who have been laid off may be finding it difficult to get back into the labour market, there is no wave of layoffs in the data.
This labour market backdrop reinforces our view that, barring any bouts of serious financial stress or downside surprises to inflation, the Fed is more likely to make its first cut to policy rates in May/June than in March.