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Jobless Claims Fall, Markets Remain Cautious

by Hector Demarco | June 3, 2021

What happened: The number of Americans filing new claims for unemployment benefits dropped by 20,000 to 385,000 from the prior week’s revised level – slightly better than the 16,000-decrease expected by economists. This print suggests that employers are retaining more workers as they prepare for a full reopening of the economy.

The report also showed that 3.771 million people continued to collect payments in the week ending May 22, up from 3.602 million in the previous week.

The labour market strengthened: A separate report from ADP showed that private businesses in the U.S. hired 978,000 more workers in May from April, 278,000 more than consensus forecasts. The service-providing sector added 850,000 jobs, led by leisure & hospitality (440,000), education & health (139,000), and trade, transportation, & utilities (118,000). The goods-producing sector added 128,000 jobs, boosted by rises in construction (65,000) and manufacturing (52,000) employment.

However, Challenger, Gray & Christmas reported that job cuts announced by US-based employers rose 7 per cent in May to 24,586, from the 22,913 announced in April.

But there is a long way to go: New and continuing jobless claims are still highly elevated compared to 2019 levels. The current numbers are almost double the 220,000 weekly new filings and 1.699 million people receiving payments that were reported (on average) prior to the pandemic. The acceleration of COVID-19 vaccinations, lifting of social distancing restrictions, and President Biden’s $6 trillion-dollar 2022 budget plan should help the economy recover, but full employment – arguably the most important part of the Federal Reserve’s mandate – remains a distant prospect.

Markets hold steady: 10-year Treasury yields remain near the 1.61 per cent mark, and the trade-weighted dollar is roughly 0.35 per cent higher relative to levels from earlier this morning.

All eyes on Friday: Trading ranges are shrinking, and volatility is compressed ahead of tomorrow’s widely anticipated non-farm payroll report from the Bureau of Labor Statistics. Strong employment numbers could revive economic overheating concerns, pushing the dollar index and yields higher.

Hector Demarco
Currency Strategist

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