Jobless claims hit a five-month low despite the Fed’s efforts to slow the labor market

A person arranges groceries at El Progreso Market in the Mount Pleasant neighborhood of Washington, DC, on August 19, 2022.

Sarah Silbiger | Reuters

Initial jobless claims fell last week to a five-month low, a sign that the labor market is strengthening even as the Federal Reserve tries to slow things down.

Jobless claims for the week ended Sept. 24 were 1[ads1]93,000, down 16,000 from last week’s downwardly revised total and below the 215,000 Dow Jones estimate, according to a Labor Department report Thursday.

The drop in claims was the lowest level since April 23 and the first time claims fell below 200,000 since early May.

Continuing claims, which run a week behind, fell 29,000 to 1.347 million.

The strong labor numbers come amid the Fed’s efforts to cool the economy and bring down inflation, which is nearing its highest levels since the early 1980s. Central bank officials have specifically pointed to the tight labor market and its upward pressure on wages as a target for the policy.

Shares plunged after the report, while government yields were higher.

“The recent decline in layoffs comes in the face of the Fed’s efforts to soften labor market conditions and bring inflation back toward the 2% target,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Capital markets have heard the Fed, and investors are feeling the pain. But the labor market? For now, at least, it’s not listening.”

There was more bad news Thursday for the Fed on the inflation front.

The personal consumption expenditures price index, a favorite inflation gauge for the Fed, showed a 7.3% year-over-year price increase in the second quarter, the Commerce Department reported in its final GDP estimate for the period. That was above the 7.1% reading in the previous two Q2 estimates and close to the 7.5% gain in the first quarter.

Excluding food and energy, core PCE inflation was 4.7%, 0.3 percentage points higher than the previous two estimates, but below the 5.6% jump in Q1.

The Fed has raised interest rates five times in 2022 by a total of 3 percentage points, and officials have stressed the importance of continuing to raise until inflation gets closer to the central bank’s 2% target.

“We have to do what we have to do to get back to price stability, because we can’t have a healthy economy, we can’t have good labor markets over time, unless we get back to price stability,” Cleveland Fed President Loretta Mester told CNBC’s “Squawk Box” in an interview Thursday morning.

However, the Cleveland Fed’s own Inflation Nowcasting gauge shows little improvement on the inflation front in September, even with a sharp decline in gas prices. The gauge indicates an 8.2% increase in the headline CPI and a 6.6% increase in core prices, compared with respective readings of 8.3% and 6.3% in August.

The BEA’s final estimate for Q2 GDP was a decline of 0.6%, unchanged from the previous two estimates. It was the second consecutive quarter of negative GDP, which meets a widely accepted definition of a recession.

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