The number of Americans filing for unemployment benefits fell for the second straight week, and July retail sales rose solidly, with the two data releases on Aug. 15 appearing to soothe investor fears of an imminent recession, with Wall Street opening higher and the yield on the benchmark 10-year U.S. Treasury note making a significant move to the upside.
Initial jobless claims, high-frequency data point seen as a proxy for unemployment, fell by 7,000, to 227,000 for the week that ended on Aug. 10, according to data from the Department of Labor.
Continuing jobless claims, which reflect the number of Americans continuing to collect unemployment benefits after filing an initial claim, also dropped by 7,000, to 1.864 million. This further reinforced the view that the labor market may well defy expectations for a hard landing amid the Federal Reserve’s high-interest rate policy, which has cooled the economy and sent the unemployment rate drifting higher.
“U.S. recession fears continue to subside as initial jobless claims moved down again this week to 227,000 (from 234,000 last week and 250,000 two weeks ago), following the same pattern as last August,” analyst Charlie Bilello said in a post on X.
Other data fed the soft landing narrative on Thursday, as retail sales rose by the most in one and a half years in July. This helped put investors at ease after a disappointing jobs report on Aug. 2 showed that the unemployment rate had jumped to a near three-year high of 4.3 percent. At 1.0 percent month over month, the growth in retail sales came in well above analysts’ forecast of 0.4 percent.
“Together, the numbers—albeit noisy—push the margin against the risk of a recession (which I put at 35 percent),” economist Mohamed El-Erian, the former CEO of U.S. investment management firm Pimco, said in a post on X.
El-Erian’s recession odds of 35 percent are the mirror opposite of those expressed a week ago by JPMorgan CEO Jamie Dimon, who said that ongoing uncertainties—including geopolitical tensions, housing market instability, and high inflation—have the potential to derail the economy. Dimon put the odds of avoiding a recession at 35–40 percent.
Recession fears made a major comeback in recent weeks following a run of disappointing labor market and manufacturing data that rocked markets. While markets have mostly bounced back, many analysts warn of potentially more volatility ahead.
Thursday’s retail sales and jobless claims data sent Wall Street’s main indexes higher as investors dumped the safety of bonds and took riskier bets on stocks. At around 3:30 p.m. on Thursday, the benchmark S&P 500 Index was up 1.66 percent, the Dow Jones Industrial Average was trading 1.43 percent higher, and the Nasdaq Composite was up 2.4 percent.
At the same time, yields on the benchmark 10-year U.S. Treasury jumped higher on the retail sales and unemployment news, rising by a significant 8 basis points, to 3.917 percent, according to data from Tradingview.
The bond and stock moves suggested a pivot away from the risk-off sentiment that gripped markets after the disappointing Aug. 2 jobs report and sparked a sell-off of risky assets like stocks and a flight to the relative safety of U.S. Treasurys.
In a bid to quash high inflation, the Federal Reserve took rates quickly to their current range of 5.25–5.5 percent and has held them there for about a year.
Fed officials have acknowledged that the central bank’s interest-rate policy has led to some obvious cooling in the jobs market and have vowed that the Fed is prepared to respond with rate cuts if the unemployment rate were to spike unexpectedly or in case other economic indicators deteriorate seriously.
Thursday’s encouraging labor market and retail sales data also led to a recalibrating of rate cut expectations.
Markets lowered the odds of a 50 basis-point rate cut at the Fed’s September policy meeting from 41.5 percent before the data dropped to 25.5 percent as of the time of reporting, according to CME Group’s FedWatch tool.
A majority of investors now expect three, 25 basis-point cuts by the end of the year.
From The Epoch Times