US: Jobless Claims show a recession has not started, but it might not be far

The weekly report showed Initial Jobless Claims rose to 260K in the week ended July 30 while Continuing Claims rose to 1.41 million, the highest level since March. The recent trend in jobless continuing claims adds weight to the argument that the US economy is not currently in recession, explained analysts at Wells Fargo. However, they warn that the recent uptick resembles the months that preceded prior recessions, suggesting that the start of a recession may not be far off.

Key Quotes:

“Initial jobless claims have been trending higher since early April in one of the clearest signs that labor market conditions have begun to deteriorate. While jobless claims have a successful track record foreshadowing recession, we find continuing claims to be a better check on whether the economy is already in one. The recent trend in continuing claims adds weight to the argument that the economy is not currently in recession. That said, the recent uptick bears some resemblance to the months that preceded prior recessions, suggesting that the start of a recession may not be far off.”

“While the potential for payrolls to be revised over the next few months or even year limit the conviction with which we can say whether the U.S. economy is in recession, continuing claims add weight to the argument that the recession clock has not started ticking. That said, continuing claims are starting to drift higher and, with the rise in initial claims, suggest the start of a recession might not be far off either.”

“Whether the U.S. economy may already be in a recession is likely to have minimal bearing on the course of Fed policy in the near term, however. With inflation still raging and FOMC members, including Chair Powell, acknowledging that an “over-tight” labor market is contributing to price pressures, we suspect the Fed will be undeterred by the recent slowing in activity both inside and outside the labor market, and it will push ahead with raising the fed funds rate to around 4% in the coming months.”

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