The number of initial jobless claims in the United States last week saw the largest drop in a year, analysts say it will help alleviate concerns about a recession

According to Zhitong Finance, data released by the US Department of Labor on Thursday showed that as of the week ending August 3, initial jobless claims decreased by 17,000 to 233,000, lower than the expected 240,000, marking the largest drop in nearly a year. This was due to a decrease in the number of applicants in states that had seen a significant increase in recent weeks, such as Michigan, Missouri, and Texas. As of the week ending July 27, continuing jobless claims slightly decreased to 1.875 million, with an expectation of 1.87 million.

Despite the upward trend in both initial and continuing claims earlier this year, they have remained near 2019 levels. The drop in data released on Thursday may alleviate some concerns - that the US labor market is cooling too quickly following last week's non-farm payroll report that sparked market panic.

The decrease in initial jobless claims may help reassure the market that the US labor market is only returning to pre-pandemic trends rather than deteriorating rapidly. The non-farm payroll report released last week showed a significant reduction in hiring by employers in July, with the unemployment rate rising for the fourth consecutive month, triggering a key recession indicator.

Following the release of the non-farm payroll report last Friday, concerns about the job market intensified. The non-farm employment in July increased by only 114,000, well below expectations. At the same time, the unemployment rate rose to 4.3%, triggering the so-called "Sam Rule," which assesses economic recession by measuring changes in the unemployment rate.

Thomas Hayes, an analyst at Great Hill Capital LLC, said, "Since the release of the US non-farm payroll report last Friday, everyone has been nervous about the economic recession triggered by the Sam Rule. The lower-than-expected initial jobless claims have eased concerns about a complete collapse of the labor market. Our economy is quite strong, and there is no imminent recession, so we can wait a few more weeks for the Fed's first rate cut."

This has led to a global market sell-off and calls for an emergency rate cut by the Fed before the next scheduled policy meeting in September - economists believe this is highly unlikely. Instead, some expect a 50 basis point cut in September, rather than the usual 25 basis points. The market expects the Fed to cut rates by a full percentage point by the end of the year.

Since the release of the employment report last Friday, Fed officials have consistently stated that they will not overreact to one month of data, but they acknowledge that the employment aspect of their dual mandate has received greater attention due to easing inflation Federal Reserve Chairman Powell stated before the release of the employment report that the labor market is slowly recovering to pre-pandemic levels. Other data also support this view, as job vacancies remain high and layoffs are rare, although some well-known giants like Dell Technologies and Intel have recently conducted layoffs.

Bannockburn Global Forex market strategist Marc Chandler said, "When it comes to the labor market, it is multidimensional, not a single number. So I think the initial jobless claims in the United States is one of the numbers. Today's initial claims data is slightly lower than expected, although the four-week moving average is still rising. The idea that the economy is about to decline seems unreliable."

Weekly initial jobless claims data is easily influenced by volatility factors, especially at this time of year, as data can fluctuate due to school summer breaks and summer shutdowns at car factories. The less volatile four-week moving average of initial jobless claims in the United States rose slightly to 240,000 for the week ending August 3, the highest level in a year.

Before seasonal adjustments, initial jobless claims decreased by about 13,600 to 203,054, the lowest since May. After Hurricane Beryl made landfall in early July, the number of applicants in Texas surged, recently declining, but the impact of Hurricane Debbie on the Southeast may show up in next week's data.

Following the report, U.S. benchmark stock index futures and U.S. Treasury yields rose. U.S. 2-year and 3-year Treasury yields rose 10 basis points on the day; the U.S. 10-year Treasury yield rose back above 4%. S&P 500 index futures expanded by 1%, Nasdaq 100 index futures rose by 1.4%, and Dow futures rose by 0.5%.

Wasif Latif, President and Chief Investment Officer of Sarmaya Partners in Princeton, New Jersey, said that initial claims were lower than expected, so the market seems pleased. At least the bulls in the market seem pleased, as this may be a sign of a soft landing; the big data that matters are the unemployment rates from last Friday and next month