Partly Reflecting Declines in Texas and Michigan

• Initial claims for unemployment insurance fell by 17,000 in the week ending August 3, partly reflecting a 5K decline in Texas as the aftermath of Hurricane Beryl starts returning to normal and a 7K decline in Michigan as autoworkers returned to work after the usual July shutdowns for retooling.
• Continuing claims for unemployment insurance rose by 6,000 in the week ending July 27 and the four week moving average rose by 7,000.
• The labor market remains solid, but hiring is slowing as noted by Fed Chair Powell and as shown by the relatively smaller payroll job rise in July.
• The labor market will soften further in the latter half of 2024, with smaller job gains and a slightly higher unemployment rate. 

Initial claims for unemployment insurance fell by 17,000 in the week ending August 3, partly reflecting a 5K decline of initial claimants in Texas as the aftermath of Hurricane Beryl starts returning to normal and a 7K decline in Michigan as autoworkers returned to work after the usual July shutdowns for retooling. The four-week moving average of initial claims, which smooths out some of the seasonal and weather-related volatility, rose by 2,500 to 241,000, the highest since late-August 2023.

Initial claims have moved higher in 2024 after starting the year at an historically low 200,000. Over the past couple of years initial claims have risen and fallen, and there was a similar increase in the first half of 2023, which was followed by an unwinding in the second half of last year. July is a particularly difficult month to seasonally adjust initial claims since widespread temporary layoffs in the vehicle industry for retooling have greatly varied in the last three Julys following the complete shutdown in 2020 for Covid.

Continuing claims for unemployment insurance rose by 6,000 to 1.875 million in the week ending July 27 from a downward revised 1.869 million (was 1.877 million). The four-week moving average of continuing claims rose by 7,000 to 1.862 million. This is the highest level for the four-week average since December 2021. The message from continuing claims is clear. They are up from their levels in the second half of 2022, all of 2023 and the first five months of 2024. Although the labor market is historically strong, it is taking somewhat longer for unemployed workers to find jobs. This is consistent with the June Job Openings and Labor Turnover Survey, or JOLTS report, and the relatively smaller rise of 114,000 payroll jobs in July.

The labor market is still historically strong, but not quite as strong as it was in 2022 and 2023. Chair Powell again said last week at his post-FOMC press conference that the labor market is back to a balance between slower demand and rising labor supply. Job growth has eased and the unemployment rate is somewhat higher than it was in early 2023, when it hit 3.4% for a couple of months. PNC expects a further easing in the labor market through the rest of this year as high interest rates continue to weigh on the economy. PNC is forecasting job growth to slow to around 150,000 per month in the latter half of this year and closer to 100,000 in the first half of 2025, and the unemployment rate will increase somewhat over the next year to about 4.5%.

In response to the FOMC gaining greater confidence in the clear slowdown in inflation last quarter and the slower pace of job growth raising downside risks to the economy as noted in the FOMC’s meeting statement last week, PNC expects the FOMC to cut the funds rate by 25 bps points at their September 18, November 6, and December 18, 2024 meetings followed by three more 25 bps rate cuts in the first half of 2025.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.