Jobless claims at 197,000 leave the Fed's October rate call resting on inflation

On the numbers as first published, initial claims did not fall at all. The Labor Department originally put the prior week at 197,000, has since revised it up to 198,000, and now counts this week's 197,000 as a 1,000 decline ^[1][3]. The entire drop is the revision ^[2]. Continuing claims got the opposite treatment: the prior week was revised down from 1.719 million to 1.712 million before this week's 11,000 fall to 1.701 million ^[5]. Against the figure first printed, that is a decline of 18,000 ^[3].

The levels are low on every measure in the release. Initial claims came in 3,000, or 1.5%, under the 200,000 median in a Bloomberg survey ^[2][1], and the four-week average fell 2,500 to 200,000 ^[4]. Continuing claims sit 22,750 below their own four-week average of 1,723,750 ^[6][4]. The Seoul Economic Daily reports that most analysts see hiring slowing even as employers avoid large-scale cuts ^[8]. If slower hiring were keeping laid-off workers on benefits longer, continuing claims are where it would appear first, and they fell ^[5].

Employers have been paying higher energy prices since the fighting with Iran began on February 28, according to the South China Morning Post ^[14]. Over that stretch they have not cut staff in numbers that reach the claims data, which has hovered near 200,000 for most of the year ^[7] and mostly stayed under 220,000 ^[13].

Investors are weighing whether the Fed raises its benchmark rate again at the October meeting of the Federal Open Market Committee ^[11]. The committee can read this week's data more than one way. Steady claims could be taken as license to hike, since nothing in the labor numbers argues for waiting. The August personal consumption expenditures index points the other way. It rose 3.4% from a year earlier against a 3.7% forecast ^[9], and some in the market read that as lowering the odds of an October increase, according to the Seoul Economic Daily ^[10]. Or the committee could give the 0.3-point miss on the annual rate ^[5] less weight than the monthly gain of 0.3%, which matched expectations ^[9].

I think the third reading has the better numbers behind it. A 0.3% monthly gain compounded over twelve months comes to about 3.7% ^[6], the same as the annual rate forecasters expected ^[9]. The monthly figure is rounded, and anything from 0.25% to 0.35% annualizes to between 3.0% and 4.3% ^[6]. On that evidence the labor data removes one reason to wait, and the inflation data supplies a weaker one than the 3.4% headline suggests. The sources do not show the Fed has decided to hike. The counter-case is the one some in the market made on the day ^[10]: a committee weighing another increase may want more than one below-forecast annual print before it moves again.

This view fails if initial claims break above the 220,000 level they have mostly stayed under this year ^[13]. At that point the labor market would be back in the October argument, on the side of waiting.