Refuting the economic recession theory! Initial data proves the resilience of the job market

Last week, the drop in initial jobless claims in the United States exceeded expectations, easing concerns in the market about the labor market collapsing and reinforcing the view that the prospect of a soft landing remains intact.

Data released by the U.S. Department of Labor on Thursday showed that the seasonally adjusted initial jobless claims for the week ending August 3 were 233,000, a decrease of 17,000, marking the largest decline in about 11 months. Economists surveyed by Reuters had previously expected initial jobless claims for the week to be 240,000.

After a significant unexpected increase in initial jobless claims the previous week, the latest data is a welcome reversal, likely reflecting the fading impact of temporary shutdowns at auto plants and Hurricane Beryl. The previous value was slightly revised, adjusted upward from 249,000 to 250,000.

As initial jobless claims data in the U.S. eased investors' concerns about the job market, the three major U.S. stock indexes opened higher, with the Dow rising 210 points at the opening, the S&P 500 up 1.06%, and the Nasdaq up 1.4%. The yield on the benchmark 10-year U.S. Treasury rose to above 4%. The U.S. dollar index also strengthened.

Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, said, "Discussions about an imminent recession seem far-fetched."

Interest rate futures markets indicate that traders have reduced the probability of a 50 basis point rate cut by the Federal Reserve in September from 70% to about 60%.

Since June, initial jobless claims in the U.S. have been on the rise, partly due to auto plants shutting down for equipment changes and the damage caused by Hurricane Beryl in Texas.

With these impacts fading, unadjusted initial jobless claims decreased by 13,589 to 203,054, the lowest since early June. Initial jobless claims in Michigan and Missouri saw significant declines, with both states having a large number of auto assembly plants. Auto manufacturers typically shut down in July to retool for new models, but each manufacturer's scheduling varies.

Meanwhile, data shows that as of the week ending August 3, continued jobless claims increased by 6,000 to 1.88 million. The gradual increase in these numbers indicates that unemployed individuals are taking longer to find new jobs.

Although initial jobless claims have been hovering near this year's highs in recent weeks, overall layoffs remain low. Government data released last week showed that the layoff rate in June was the lowest in over two years.

Analysts believe that while companies are not hiring too many people, nor are they laying off too many, this is a sign of the labor market cooling down from a hot state to a more normal state, rather than undergoing a severe deterioration.

Chris Larkin, Managing Director of Trading and Investing at E-Trade, said, "Today's initial jobless claims data may help alleviate some concerns raised by last week's employment report." However, as inflation data is set to be released next week, the stock market is still experiencing its biggest pullback of the year, and it is currently unclear to what extent this will affect market sentiment