The numbers: The number of people who applied for unemployment benefits last week fell to the lowest level in more than three months, a decline likely exaggerated by July 4 holiday but that still reflects the strongest labor market in decades.
Initial jobless claims, a rough way to measure layoffs, dropped by 13,000 to 209,000 in the seven days ended July 6, the government said Thursday.
Economists polled by MarketWatch estimated new claims would total a seasonally adjusted 221,000.
The more stable monthly average of new claims slid by 3,250 to 219,250. The four-week average usually gives a more accurate read into labor-market conditions than the more volatile weekly number.
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What happened: Claims often decline around a holiday because some people wait until the following week to apply for benefits.
Raw or unadjusted claims sank last week in New Jersey and California, largely offsetting big increases in New York and Michigan. Claims in late June and early July are often affected by the end of the school year as well as annual auto-plant retooling.
The number of people already collecting benefits, known as continuing claims, rose by 27,000 to 1.72 million to hit a nearly four-month high. These claims should subside soon with fewer people applying for benefits, however.
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Big picture: The U.S. labor market can’t be characterized as “hot,” according to Federal Reserve Chairman Jerome Powell, because wages aren’t rising as fast as they usually do when the economy is solid and unemployment is very low. The jobless rate stood at 3.7% in June.
That said, the labor market can likely be described as quite warm, at the very least. New jobless claims have hovered in the low 200,000s for the past year and a half, matching levels last seen in the late 1960s and early 1970s.
The U.S. also added a healthy 224,000 new jobs in June and layoffs remain near a half-century low even though the economy faces more headwinds now than it did a year earlier.
As long as the labor market stays warm, the economy will avoid recession, economists have said. The Federal Reserve appears ready to pre-emptively cut rates despite the healthy labor data to combat what Chairman Jerome Powell has described as “cross-currents” from trade wars between the U.S. and China.
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Market reaction: The Dow Jones Industrial Average DJIA, +0.29% and S&P 500 index SPX, +0.45% were set to open higher in Thursday trades, but futures came off firmer gains after the data were released. The three main benchmarks have mostly traded at records on relaxed trade tensions with China and expectations the Federal Reserve will reduce interest rates as early as the end of the this month. Strong economic reports that appear to downgrade the case for interest-rate cuts have tended to weaken buying appetite for stocks in the current environment because a rate reduction translates to lower costs of capital for corporations and individuals.
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The 10-year Treasury yield TMUBMUSD10Y, +0.93% was up to 2.08% from around 2.06% on Wednesday.