Weekly Unemployment Claims Decline More Than Expected, Cool Recession Concerns: Stocks Rebound

New jobless claims fell last week in the U.S., showing a faster-than-expected decline and quelling fears of a U.S. ongoing economic slowdown. Continuing unemployment claims ticked higher than economists had predicted, signaling some persistence of a cooling trend in the U.S. labor market.

Initial unemployment benefits totaled 233,000 for the week ending Aug. 2, down from the upwardly revised 250,000 the previous week, according to data released Thursday.

This figure fell short of the 240,000 weekly claims forecasted by TradingEconomics consensus data.

Key insights from the latest unemployment claims report include:

• The four-week moving average of weekly jobless claims, which helps smooth out weekly fluctuations, rose from 238,250 to 240,750, reaching the highest level in a year.
• Continuing claims eased marginally from the downwardly revised 1.869 million to 1.875 million, the highest level since late November 2021 and surpassing the predicted 1.87 million.
• The largest increases in initial claims were reported in California (1,051), while the biggest decreases were in Texas (down by 4,814) with the latter suggesting that the Hurricane Beryl might have played an important role in the higher unemployment claims during the prior weeks.

The national unemployment rate unexpectedly increased from 4.1% to 4.3% last month, with the number of unemployed individuals rising to 7.16 million, the highest level since October 2021. This surge has sparked investor concerns about potential weaknesses in the economy, thereby increasing expectations for Federal Reserve rate cuts.

Investors assign a 70% probability to the Federal Reserve cutting rates by 50 basis points in September, according to the CME Group‘s FedWatch tool.

Market Reactions

Stocks ended Wednesday’s session on a weak note, as investor risk sentiment remained highly sensitive to economic news. The broader S&P 500 index, tracked by the SPDR S&P 500 ETF Trust SPY, declined 0.7% after gaining 0.9% on Tuesday.

In Thursday’s premarket trading, futures on major U.S. indices were in the green. As of 8:37 a.m. ET, Nasdaq 100 futures were up 1%, S&P 500 futures soared 0.8% and Dow Jones futures rose slightly by 0.4%.

Both Treasury yields and the dollar remained higher following the release of the unemployment insurance claims report, suggesting easing concerns of a U.S. recession.

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