US jobless levels tumbled to their lowest level in nearly 60 years this week — defying forecasts and signaling layoffs remain muted in a stable labour market. The numbers have also sparked inflation fears as the escalating US-Iran war pushed oil prices beyond the $100 mark on Friday. Financial markets now believe that a 0.25 percentage point rate hike may be possible when the US Federal Reserve meets.
According to data shared by the US Labor Department, initial claims for state jobless benefits dropped by 22,000 to a seasonally adjusted 187,000 for the week ended July 18. This is the largest decline in three months and also the lowest levels seen since September 1969. Initial jobless claims refers to unemployment benefit requests filed by recently laid-off workers. The number of people on jobless jobless benefit rolls for more than a week — considered a proxy for hiring trends — also fell to a six-week low of 1.796 million in the week ended July 11.
The American job market struck an unusual balance between limited layoffs, restrained supply of available workers and a low-key pace of job creation. The combination has allowed the jobless rate to remain at a historically low level in recent times. It has also prompted a growing cadre of Fed policymakers to become more vocally concerned about inflation that remains well above their 2% target than about a resilient job market.
Continued stability in labour market
The unemployment rate had dipped unexpectedly to a one-year-low of 4.2% in June. But this was driven by a significant decline in the workforce rather than a boom in hiring. The participation rate fell to its lowest level in more than five years as around 720,000 people left the labour force. Experts have suggested that the June slowdown in job growth was likely a delayed response to the Middle East conflict. They pointed to a 61,000 drop in leisure and hospitality payrolls — the largest since the pandemic — which the government said reflected “weaker than usual seasonal hiring”.
“There may be some seasonal noise in the data, given summer months tend to be noisy, but the extremely low level of claims is hard to ignore and the trend in continued claims remains encouraging. Low layoff rates, warmer payroll gains, and weak labor supply growth will keep a lid on the unemployment rate in the months ahead and potentially push it lower from its current level of 4.2%” Matthew Martin — a senior US economist at Oxford Economics — told Reuters.
Oil prices climb – Is a rate hike imminent?
Crude prices moved back above $100 a barrel for the first time since May in one of the steepest run-ups since the war began. The surge has also stoked inflation concerns and strengthened the case for higher interest rates ahead of the Federal Reserve policy meeting next week.
Investors are now focused on the upcoming US Fed meeting, where policymakers are widely expected to keep rates unchanged. Traders are pricing in about an 81% chance of a hike in September, according to the CME FedWatch Tool.