US Jobless Claims Mask Labour Strain

The latest figures from the US Department of Labor present a complex paradox for global investors. On the surface, the immediate data suggests resilience, with initial filings for unemployment benefits retreating. However, a deeper dive into the metrics reveals a labour market that is cooling faster than headline numbers might initially suggest, validating the Federal Reserve’s recent dovish pivot.

Initial filings for state unemployment benefits declined by 13,000, landing at 224,000 for the week ending December 13. This marks a reprieve from the previous week’s 237,000 claims. While this figure stays within the consolidated range observed in recent years, it notably exceeded economists' expectations, which had pegged the number closer to 200,000. This miss against consensus suggests that volatility remains present in the weekly data, often viewed as the canary in the coal mine for economic shifts.

While the weekly dip in claims offers a glimmer of stability, the broader trend points towards stagnation. The four-week moving average—a metric often used to strip out weekly noise—ticked upwards by 500 to reach 217,500. More concerning for structural bulls is the rise in continuing claims, which climbed by 67,000 to hit 1.9 million for the week ending December 6. This increase implies that once workers lose their roles, they are finding it increasingly difficult to secure new employment.

The backdrop to these weekly figures is a monthly jobs report that has alarmed some analysts. Government data released earlier this week indicated that the US economy added a modest 64,000 jobs in November. This follows a stark contraction in October, where payrolls plummeted by 105,000, largely driven by the exit of 162,000 federal workers following fiscal year-end adjustments. Consequently, the unemployment rate has crept up to 4.6 per cent in November, marking its highest level since 2021.

Furthermore, historical revisions continue to paint a bleaker picture than originally reported. The Labor Department revised payroll counts for August and September downwards by a combined 33,000. The trajectory of job creation has slowed significantly; since March, monthly job gains have averaged just 35,000, a steep decline from the 71,000 average recorded in the twelve months prior.

The deterioration in labour fundamentals was a primary driver behind the Federal Reserve’s decision last week to cut its benchmark interest rate by a quarter percentage point—the third consecutive reduction. Fed Chair Jerome Powell was candid in his assessment, noting that the decision reflected growing unease that "labour market conditions may be weaker than current data suggests." His comments highlight a central bank that is no longer fighting inflation but is instead shifting gears to prevent a recessionary slide.

This sentiment is echoed in the corporate sector. Major large-cap players, including UPS, General Motors, Amazon, and Verizon, have all announced workforce reductions in recent months. While these cuts often lag in official government statistics, they signal a defensive posture among America’s largest employers. For equity markets, this presents a challenging narrative: bad news is no longer 'good news' (signalling rate cuts), as the rate cuts are now reacting to genuine economic fragility rather than just disinflationary progress.