Initial jobless claims fell to 197,000 last week, below the 201,000 economists expected, and the four-week average slipped to 202,250. Futures now price about a two-in-three chance of an October rate increase.
The weekly count of Americans filing for unemployment benefits delivered the one thing the bond market did not need on Thursday: more evidence that the economy is fine.
Initial claims totaled 197,000 in the week ended , the Labor Department said, a decline of 1,000 from the prior week. Economists had forecast 201,000. The prior week's figure was revised up by 2,000, to 198,000, and the four-week moving average, which smooths out weekly noise, fell by 1,750 to 202,250.
Claims from people already receiving benefits were also steady. Continuing claims rose by 2,000 to 1.719 million in the week ended , and the insured unemployment rate held at 1.1%.
In a different year this would be unremarkable good news. This week it lands in a market that is repricing how far the Federal Reserve will push rates. The Fed raised its benchmark to a range of 3.75% to 4% last week. Futures traders put the odds of another quarter-point increase at the – meeting at about 66% on Thursday afternoon, up from about 55% a week earlier.
"Another week of low jobless claims reaffirms the resilience of the labor market and reflects the underlying strength of the near-term economic outlook," said Jim Baird, chief investment officer at Plante Moran Financial Advisors. That strength, he added, "reinforces the growing expectation that the Federal Reserve has ample room to raise rates further until policymakers are convinced that inflation is on a path back to 2% in an acceptable timeframe."
Fed officials have been making the same point. Philadelphia Fed President Anna Paulson described the labor market as "holding steady" on Thursday, and New York Fed President John Williams called one more increase by year-end a reasonable expectation.
The claims data removes one argument for patience. Policymakers worried about tightening into a weakening job market would look first for a rise in layoffs, and there is none. A labor market that is not cracking leaves inflation as the main input, and Fed officials have said repeatedly that inflation is running above their target.
The average stock is feeling it. The equal-weight version of the S&P 500, which gives each company the same share of the fund, had lost 0.6% for the week by Thursday morning.
Friday brings durable goods orders and the final September reading on consumer sentiment from the University of Michigan. Four more weekly claims reports arrive before the October meeting. A sustained climb in filings would be the first sign that the labor leg of the Fed's case is weakening. Readings near 200,000 keep it intact.