Cooling labor market fuels talk of Fed rate cuts

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A third-straight increase in weekly jobless claims added to evidence that the labor market is cooling as analysts weighed the likelihood that the Federal Reserve will cut interest rates.

Initial jobless claims rose 3,000 to 222,000 in the week ended June 8, the Labor Department reported Thursday. Economists polled by IFR Markets had expected 217,000 claims in the week. Continuing claims rose 1.695 million in the week ended June 1 from a revised 1.693 million the week before.

Jobless claims data “are volatile,” said Robert Frick, corporate economist at Navy Federal Credit Union. “We'll need to wait for at least a month more of reports before we can identify a trend.”

On Friday, the employment situation report showed nonfarm payrolls grew by 75,000 in May, well below the 183,000 expected by economists.

While Frick doesn’t believe full employment has been achieved, given an average of 150,000 jobs added the past three months, “job growth may be slowing as that three-month average is about 70,000 jobs per month less than last year.”

It’s unclear if this is the result of fewer workers or slower hiring. “A case can be made for both,” Frick said.

“Trade issues may have employers holding back on hiring, and consumer demand hasn't been strong,” he added.

Although the latest job openings survey showed 7.4 million openings, “employers complain that workers lack the skills to fill many of those jobs. So it’s possible that pool of qualified workers is getting more tapped out.”

Charles Self, chief investment officer at iSectors, agreed. “It is too early to say that the employment picture is turning softer,” with another month of data needed for claims and payrolls to get a better read. “We at iSectors believe that the economy is slowing significantly so we wouldn’t be surprised if this employment pattern materializes. If it does, we believe that at least three 25 basis point cuts in the fed fund rate will be implemented by the Federal Reserve before year-end 2019.”

Greg McBride, chief financial analyst atBankrate.com, said, “some slowing in job creation is to be expected as the economy reaches full employment, but its too early to tell if we’ve seen the turning point with the uptick in unemployment claim filings. The uncertainty about trade and its potential impact on growth isn’t helping though.”

Separately, the Labor Department reported that U.S. import prices fell 0.3% in May, while export prices were off 0.2%. In April, import and export prices each grew 0.1%.

The last time import prices fell was December, when prices dropped 1.4%, and prices are off 1.5% for the past 12 months, the largest year-over-year decline since August 2016, when the index slid 2.2%, Labor said.

Export prices hadn’t fallen since a 0.6% drop in January, and are down 0.7% in the past year, the largest year-over-year drop since a 1.1% decrease in October 2016.

This suggests inflation remains in check and supports the possibility of a Fed rate cut this year.

Late Tuesday, the Treasury Department reported the government posted a $208 billion budget deficit in May, the highest ever for that month, as $440 billion in outlays eclipsed the $232 billion in receipts.

Year-to-date, the government’s $739 billion deficit was larger than the $532 billion shortfall in the previous fiscal year.

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Monetary policy Economic indicators Jobless claims
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