One of the most anticipated data sets during the pandemic is the jobless rate, and the number of people applying for unemployment benefits In the United States.
The Initial Jobless Claims and Continuing Claims, released weekly, grew in importance when comparing it to the monthly Non-Farm Payrolls (NFP).
If prior to the pandemic investors focused on the NFP and the private payrolls to see the state of the US labor market, the analysis shifted to weekly data. The jobless claims existed prior to the crisis , but it was often overlooked due to its lagging characteristic. However, nowadays, it offers valuable insight into how the labor market coped with the crisis, and investors look for any sign of improvement.
No Sign of Improvement in the Last Weeks
The chart above reflects how the virus affected the labor market. After a strong spike in the first weeks of the recession, the number of people applying for unemployment benefits declined. However, it remains at extremely elevated levels if we compare with conditions prior to the pandemic, hinting at the fact that many of the jobs lost became permanent.
A modest improvement last week came from the continuing claims – they dropped to seventeen million, but still a high number that suggests layoffs continue.
Some voices argue that the data is affected by the seasonal adjustment and that the pace of recovery is overstated. As it turns out, this time of the year is known for jobless claims to increase, so the seasonal adjustment is pushing the data down – an effect that should be visible during the upcoming weeks too.
The data, released yesterday, confirms the drop in job openings in the last two weeks – 5.5%, in a sign that the recovery is faltering. The specter of a W-shaped recovery becomes more possible and the implications are that we will see a drop in employment in the July report.
The market did not react much to the news. In a typical summer trading session, volatility increased a bit, but not by much compared with the rest of the trading day. Moreover, the claims data came out at the same time with the retail sales, which were way better than expectations. Hence, a mixed outlook for yesterday’s trading day contributed to the low volatility in the USD pairs.
However investors should not underestimate the weakness seen in the claims data. If sustained, it will have lasting effects on the economic recovery.