Tight Labor Market Underpins Economy as US Weekly Jobless Claims Drop


The number of Americans filing new claims for unemployment benefits fell last week, indicating the continued tightness in the labor market even as job growth slows.

Initial claims for state unemployment benefits dropped by 11,000 to a seasonally adjusted 239,000 for the week ended August 12, reversing half of the surge in the prior week, according to the Labor Department.

Labor market tightness is bolstering the economy, With recent data showing a solid increase in retail sales in July and a surge in single-family homebuilding. However, this resilience raises concerns about potential interest rate hikes by the Federal Reserve.

According to Christopher Rupkey, chief economist of FWDBONDS in New York, “the labour markets are not imploding.” “As higher 5.5 percent interest rates aren’t lowering aggregate demand as anticipated. The economy may be heating up rather than cooling down.”

The labor market is slowing at the margin, but job gains in July were the second-smallest since December 2020. Unemployment rate remains low, with 1.6 job openings for every unemployed person in June.

Economists have scaled back recession forecasts, with optimism that the Fed could guide the economy to a “soft landing.” Nevertheless, a gauge of future economic activity dropped for the 16th straight month in July, indicating some fragility.