The softer US jobs report on Friday last week continues to paint a softer picture of the labour market, yet there is still one part of the story that doesn’t seem to line up.
The September non-farm payrolls rose by just 29k, well below expectations of 90k, while the unemployment rate edged up to 4.2%. Meanwhile, July and August were also revised down by a combined 60k and wage growth slowed to just 0.1% on the month. That’s a clear enough signal that hiring is losing momentum.
But so far, that weakness hasn’t translated into any meaningful rise in layoffs.
US initial jobless claims fell to 197k in the previous week, leaving them close to their lowest levels in decades. And as the chart below shows, claims remain remarkably subdued even as the pace of hiring has considerably slowed down.
That perhaps explains why the labour market still looks more like a low-hire, low-fire kind of environment. If anything, it suggests that firms are more cautious about taking on new workers but they are still holding on to the ones they already have.
Given the backdrop, that does make the Thursday’s jobless claims data worth a little more attention especially after the payrolls miss.
Having said that, I wouldn’t read too much into a modest rise in one weekly print. The headline figure can be volatile and a move slightly above 200k doesn’t suddenly mean that the labour market is falling apart.
I would argue what would carry more weight is a clearer move higher that starts pushing claims away from the subdued levels seen recently. In other words, it’s all about the trend. If so, that would offer some evidence that weaker hiring is beginning to spill over into actual job losses as well.
The softer jobs report last week has already reduced expectations for another Fed rate hike for this month. So, another soft labour market signal would just add to that argument.
On the flip side though, another low claims reading would continue to suggest that Friday’s payrolls weakness remains mainly a hiring story rather than a layoffs story. And that could take some of the dovish edge off the jobs report.
To sum up, this week’s claims data should tell us a little more about whether the US labour market is simply hiring less or finally starting to fire more.
This article was written by Justin Low at investinglive.com.
