Jobless claims ‘heading in right direction again’
Initial jobless claims declined to a seasonally adjusted 1.186 million, in the week ended Aug. 1, from the previous week’s upwardly revised level of 1.435 million, originally reported as 1.434 million, the Labor Department reported.
Economists polled by IFR Markets projected 1.400 million claims in the week.
“Better-than-expected weekly jobless claims showed the economy seems to be heading in the right direction again,” said Ed Moya, senior market analyst at OANDA. “More importantly, it snapped two straight weeks of increases. The non-seasonally adjusted initial claims reading also fell 18.5% from the prior to 984,192, the first reading below 1 million during the coronavirus pandemic.
Continuing claims fell to 16.107 million on the week ended July 25 from a downwardly revised level of 16.951 million a week earlier, first reported as 17.018 million.
Economists predicted 16.600 million continued claims for the week.
“Continuing claims also declined to 16.1 million, but still remain extremely elevated,” Moya said. “The snapshot of the economy shows improvements that coincide with the trajectory of the virus. In July, the second wave states saw reopenings hit a roadblock, which should imply that the labor market will improve as the virus spread continues to slow.”
The drop in continuing claims is "good news," according to Jeffrey Cleveland, chief economist at Payden & Rygel, who calls it "my favorite real-time indicator right now."
The employment report "should be interesting," he added. "We’re still gearing up for a weaker than expected" report although "manufacturing data has looked great."
The states with the largest rise in claims for the week ending July 25 were: Virginia (5,020), Nevada (2,842), Missouri (2,606), Indiana (2,218), and New Jersey (2,141), while the states with the biggest declines were: California (44,941), Georgia (37,329), Florida (17,514), Louisiana (13,568), and Texas (11,104).
Mester supports more fiscal action
“It is clear that more fiscal support is needed,” Federal Reserve Bank of Cleveland President Loretta Mester said Tuesday in a video conference.
“It is also clear that more fiscal support is needed to provide a bridge for households, small businesses, and state and local municipalities that have borne the brunt of the economic shutdown until the recovery is sustainably in place,” she said.
Output at year end, Mester estimated, will still be about “6% below” its level at the end of last year and the unemployment rate will be “around 9%.”
Inflation, which has been mostly below the Fed's 2% target for about a decade, “will be well below our 2% goal and of course, the uncertainty around this forecast is extremely high as we are in an unprecedented situation and outcomes depend not only on appropriate economic policy but also on public health considerations,” she said, noting the recent rise in the number of confirmed cases of the virus "has raised the downside risks to the outlook and is a stark reminder that there are several different scenarios that could play out."
Despite the “many uncertainties," Mester vowed the Fed will do what it can, using all its tools "to provide relief to households and businesses, to foster stability in the financial system, and to support the recovery back to maximum employment and price stability in service to the public.”