Recent weekly data shows the number of Americans filing new claims for unemployment benefits increased slightly less than economists had forecast. The figure rose modestly from the previous period, indicating that layoffs by US businesses remain relatively low. This demonstrates the resilience of the US labor market amid pessimistic talk of "AI disruption" and continues to run well below the average level seen over the past two years. Meanwhile, continuing jobless claims, a proxy for the flow of unemployed individuals, unexpectedly fell by 31,000 to 1.833 million in the latest week, hitting one of the lowest levels in nearly ten months. The latest data from the US Labor Department shows the AI wave has not upended the job market in the way it has impacted software stocks. For the week ending February 21, initial claims for unemployment benefits increased by only about 4,000 to 212,000. The median forecast in a survey of economists was 216,000. This reporting period included the Presidents Day holiday. The number of continuing claims, which serves as an approximate measure of individuals receiving benefits, fell to 1.83 million based on the prior week's benchmark. Despite low levels of layoffs and a notable slowdown in hiring, these figures still reflect stability in the US labor market and reinforce the narrative of an economic "soft landing." As indicated, initial jobless claims edged higher during the holiday week, while continuing claims from the previous week unexpectedly dropped to 1.83 million. Claims data can be volatile around holidays. However, the current level of initial claims remains relatively moderate, further corroborating recent data suggesting a degree of stabilization in the US labor market and that the economy is moving closer to the Federal Reserve's desired "soft landing" scenario. The US non-farm payrolls report for February, due on March 6, will help Fed policymakers better assess whether January's strong job growth and declining unemployment rate, set against a macro backdrop of AI's potential impact, reflect a temporary positive shift or a sustained positive trend in the job market and the broader economy. The four-week moving average for initial claims, which helps smooth out weekly volatility, was largely unchanged last week at 220,250. Before seasonal adjustment, initial claims fell last week to their lowest level since September, with the largest declines occurring in Michigan, New York, and Ohio. From the latest set of data, expectations for Federal Reserve interest rate cuts are being recalibrated to "cuts are possible, but there's no rush." On one hand, the January CPI rose 2.4% year-over-year and core CPI rose 2.5%, indicating that inflation is indeed continuing to moderate. On the other hand, initial claims for the week ending February 21 only rose to 212,000, while continuing claims fell to 1.833 million. Coupled with January's non-farm payroll addition of 130,000 jobs and an unemployment rate falling to 4.3%, this suggests the labor market has not deteriorated to a point requiring urgent Fed support. For monetary policy implications, this data reduces the necessity for an "immediate cut" but preserves room for "further cuts within the year." Therefore, the latest shift in market expectations for the rate-cut path appears to be anchoring the timing of the first cut from "as soon as possible" to "mid-year being more reasonable." Market reactions following the CPI data showed federal funds rate futures increasing the probability of a June rate cut to nearly 70%, up from about 64% before the data release. Simultaneously, the total amount of easing priced in for the full year rose to about 64 basis points, implying the potential for two rate cuts this year—market pricing suggests the second cut could occur in October. Following the release of today's jobless claims data, rate-cut expectations showed no significant change. This implies labor market resilience remains intact, and layoffs have not increased markedly. Consequently, the Fed almost certainly lacks the conditions to cut rates in March, and May may also be premature. June remains the most plausible timing for a potential "rate-cut window." In other words, rate-cut expectations have not been eliminated but are instead being "pushed further back." Based on recent collective commentary from Fed officials, the policy function remains "inflation first, with employment downside risks secondary."
Comments