Two separate data releases highlighted signs of softening throughout the economy on Thursday since the Federal Reserve mulls over when to cut rates of interest.
Weekly jobless claims over again rose greater than expected last week in probably the most recent sign of a cooling labor market. Recent data from the Department of Labor showed 249,000 initial jobless claims were filed throughout the week ending July 27, up from 235,000 the week prior and the perfect level since August 2023.
Meanwhile, probably the most recent reading on activity in US manufacturing showed the sector sank further into contraction during July. The ISM’s manufacturing PMI registered a reading of 46.8 in July, down from June’s reading of 48.5 and the underside reading since November 2023.
“Demand stays subdued, as firms show an unwillingness to take a position in capital and inventory due to current federal monetary policy and other conditions,” Institute for Supply Management chair Timothy Fiore said in a press release.
The weaker-than-expected economic data sent the 10-year Treasury yield (^TNX) down about 12 basis points to a few.98%. This marked the first time the 10-year yield has fallen below 4% since February. Meanwhile, all three of the important thing stock indexes turned lower.
“The continuing deterioration throughout the economic data as evidenced by today’s rising initial jobless claims, low unit labor costs, and abrupt slowing in global manufacturing activity suggest that we’re attending to some extent where bad economic news is bad for markets,” Renaissance Macro’s head of economic research Neil Dutta wrote in a note on Thursday. “Until the Fed begins cutting, they’re going to look behind the curve. In my view, the upshot is that this could be a small policy mistake that might be undone in a short while.”
The data comes lower than 24 hours after the Fed held rates of interest regular on the conclusion of its latest policy meeting. Chair Jerome Powell noted the central bank stays to be on the lookout for further confidence in inflation’s path lower but as well as acknowledged a September rate of interest cut “may thoroughly be on the table.”
Powell noted the Fed is now more attentive to not only the danger of inflation not falling, but as well as the danger of unemployment continuing to tick higher. For now, Powell said the Fed still believes the labor market is throughout the technique of a “gradual normalization.”
“If we start to see something that appears to be greater than that, then we’re well positioned to answer,” Powell said.
The priority amongst economists stays that there are already signs of slowing throughout the labor market that warrant a greater look from the Fed. In Thursday’s ISM report, the employment index tumbled to a reading of 43.4 in July, down from 49.3 in June.
Capital Economics North America economist Thomas Ryan wrote in a note on Thursday that the decline throughout the employment index will likely “raise some eyebrows.” He added, “It suggests there’s a risk that the labour market softens beyond the normalisation we’ve already seen.”
Jefferies US Economist Thomas Simons noted that the speed cuts could help the sagging manufacturing sector but “it’s looking an increasing variety of like it’s going to take greater than a handful of 25-basis-point moves.”
Investors appeared to agree with Simons, as markets in the intervening time are pricing in a 20% probability of a 50-basis-point rate of interest cut in September, nearly double the chances seen only a day prior, per the CME FedWatch Tool.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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