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The number of Americans applying for unemployment benefits fell below expectations last week with 214,000 applications vs. 220,000 expected. The rate of unemployment has remained flat at 3.5%, indicating ongoing strength in the labor market. However, while the market is capable of fuelling strong consumer spending, hiring may be slowing down.

Key Takeaways

• Initial jobless claims for the week ended January 4 came in at 214,000, down 9,000 and lower than the 220,000 expected.
• Claims have fallen for four weeks in a row, and the peak of 252,000 seen in early December may have been due to seasonal volatility around an unusually early Thanksgiving holiday.

The four-week average of initial claims, which irons out weekly volatility, dipped 9,5000 to 224,000 last week. The number of people receiving benefits after an initial week of aid rose 75,000 to 1.80 million for the week ended December 28, the largest increase since late 2015. The four-week average of these claims rose 33,000 to 1.74 million. Claims for Puerto Rico were estimated.

The labor market is still reportedly in good shape despite the ongoing trade war with China, now in its 18^th month, which has impacted manufacturing and business investment. While a tentative trade agreement has been reached, the details of how both nations will deescalate the conflict are still unclear.

Remember that seemingly big surge in U.S. layoffs after Thanksgiving? It was a mirage tied to funky statistical quirks (don’t make me explain!). Initial jobless claims have fallen four straight weeks and are back near a 50-year low. https://t.co/tDXplQSIYg pic.twitter.com/jXHHHw9Uwk

— Jeffry Bartash (@jbartash) January 9, 2020

The nonfarm payrolls report due for release from the government on Friday is estimated to reveal 160,000 jobs added to the labor market, a major drop from the 266,000 added in November. However, a report released in Wednesday indicated that private sector job growth outperformed expectations with 202,000 new jobs vs. 150,000 expected, along with upward revisions for November. Job growth is still hitting well above the recommended minimum of 100,000 required to keep pace with growth in the working age population.

Labor Slowdown

The rate of unemployment is estimated to be unchanged at the 50-year low of 3.5%. However, in August, estimates of job growth were revised downward by 501,000 positions for the year through March, the largest downward miss in ten years of estimates. Job growth appears to have averaged at 170,000 rather than 210,000 – revised data will be published on February 7.

The Federal Reserve recently commented in a December meeting stating that policymakers “generally expected sustained expansion of economic activity, strong labor market conditions,” although some of them took the view that the labor market is gradually losing momentum.

Market Reaction

Gold prices have corrected from recent 7-year highs earlier in the week, sinking back below $1,600. Spot gold last traded at $1,550.82/oz, down -1.33% with a high of $1,561.34/oz and a low of $1,541.24/oz. Gold peaked following geopolitical tensions between the US and Iran, causing many investors to look to gold as a safe haven asset. However, as the threat of war appears to be less potent in recent days, the market has seen increased risk appetite, leading to a slight pullback in the precious metals markets.