The latest data on unemployment claims in the US shows a slight increase in new applications, but it appears to be stabilizing at a level consistent with a gradual cooling of the labor market. This trend could pave the way for the Federal Reserve to implement interest rate cuts next month. A slowdown in overall business activity in the US, coupled with a decline in inflation, indicates that the economy is slowing down, giving the Fed room to focus on the job market.
As interest rates on home loans begin to drop in anticipation of a rate cut next month, existing home sales have already seen a larger-than-expected rebound. The number of initial claims for state unemployment benefits slightly rose to 232,000, but economists believe that the data should ease concerns about a rapid deterioration in the labor market. With a potential decline in the unemployment rate expected for August, experts predict that the Fed’s rate cut will likely be limited to 25 basis points.
Despite the slight increase in layoffs and the softening labor market, layoffs in the US remain historically low. The Fed is closely monitoring the labor market and the potential consequences of delaying interest rate cuts. With rate hikes in previous years curbing demand, the Fed is now expected to implement its first rate cut in over a year during its September policy meeting.
The report on business activity also indicates a gradual cooling of the economy, with the Composite PMI Output Index showing a slight decline this month but remaining at a healthy level. The slow increase in prices charged for goods and services suggests that customers are resisting price increases, which could impact business activity. Overall, economic activity remains solid, and GDP growth is expected to exceed 2% in the third quarter, alleviating concerns of a near-term recession.
US existing home sales saw a positive turn in July, exceeding expectations and reversing previous monthly declines. Improving supply and declining mortgage rates have offered hope for a potential rebound in future activity. While home resales were down on a year-on-year basis, the median existing home price increased, indicating a strengthening housing market. Inventory also saw a slight increase, suggesting a positive outlook for the housing sector.
