The drop in initial jobless claims to below pre-pandemic levels was a welcome sign amid growing concerns over a slowing labor market.
Initial claims fell to 217,000 for the week ending July 18, down from 221,000 in the prior week. The pre-pandemic average was 218,000.
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The downward trend in new claims since June reflects the seasonal distortions that have emerged in the post-pandemic years.
Even when seasonally adjusted, these distortions tend to push new claims higher in mid-summer, triggering false alarms of a potential recession. But as summer winds down, claims typically decline again, as is happening once again.
With concerns over new claims easing, attention has shifted to continuing claims—a proxy for the unemployment rate—which inched up slightly and remain at a post-pandemic high. Continuing claims inched up to 1.955 million last week, from 1.951 million.
We attribute this increase to a softening labor market, where it is now harder than at any time in the past three years to find a job after being laid off.
We expect the labor market to continue cooling, as uncertainty in the economy, particularly over trade policy, remains a feature, not a bug, of the economic landscape, at least for the next six months.
The long-awaited tailwinds from rate cuts or tax relief are unlikely to materialize before the end of the year.
