US Jobless Claims Fall to 187,000, Lowest Since 1969

Initial jobless claims just printed the lowest number in more than half a century, and the timing puts the Fed in an awkward spot heading into next week’s meeting.

According to Labor Department data, initial claims fell by 22,000 to 187,000 in the week ended July 18, blowing past the Bloomberg consensus of 210,000.

The headline number

The 187,000 print marks the lowest seasonally adjusted tally since September 1969, a nearly 57-year low. The 22,000 drop was also the largest weekly decline in three months.

Continuing claims are cooperating too. The number of people on jobless benefit rolls for more than a week, a proxy for hiring, fell to a six-week low of 1.796 million in the week ended July 11.

Read the fine print before you trade it

Economists noted the drop was partly due to seasonal quirks tied to the annual summertime temporary shutdowns of auto plants to retool for production of next year’s models, and new claims could snap back next week to the recent trend in the low 200,000s.

Jobless claims data can be highly volatile and is frequently revised, but it also provides a timelier snapshot of shifts in the labor market, which has seen a slowdown in both hiring and job cuts.

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Why the Fed cares

The US job market has been characterized by an unusual balance between a restrained supply of available workers, a low-key pace of job creation and limited layoffs that has allowed the jobless rate to remain historically low. That dynamic has pushed a growing group of Fed policymakers to become more vocally concerned about inflation than about a resilient labor market.

Following the claims data and another jump in oil prices tied to escalating hostilities in the US-Israeli-led war with Iran, rate futures reflect a nearly 40% probability that the Fed lifts rates next week from the current 3.50% to 3.75% range, and near certainty of at least one quarter-point hike by September.

Options market and stocks to watch

A tight labor market plus rising rate-hike odds is a specific setup. Watch these names into next week’s FOMC:

• XLF: banks and financials are the most direct beneficiary of a higher-for-longer path. Watch flow for calls stacking into the meeting.
• TLT: long-duration Treasuries take the hit if hike odds keep climbing. Puts have been the tell.
• SPY and QQQ: rate-sensitive mega-cap tech carries the index. Watch GEX and dealer positioning around the FOMC print.
• F and GM: if the auto retooling shutdowns are distorting the claims data, next week’s revision could hit auto names first.

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