The Labor Market Remains Strong but Better-Balanced.

• Initial claims for unemployment insurance rose by 8,000 to 229,000 in the week ending June 1, but the four week moving average fell by 1,000 to 222,000. 

• Continuing claims rose by 2,000 to 1.792 million in the week ending May 25, and the four-week moving average rose by 3,000 to 1.789 million.

Initial Unemployment Insurance (UI) claims rose by 8,000 to 229,000 in the week ending June 1, following a 5,000 rise in the previous week. The four-week moving average of claims, which smooths out some of the weekly volatility in this data fell by 1,000 to 222,000, the second highest since mid-September 2023. UI Claims have remained unusually steady and low by historical standards signaling that the labor market remains strong. The 200,000 mark appears to be a floor and the 230,000 mark appears to be a ceiling for the Initial Claims measure, with the weekly results having bounced around in that narrow range in the second half of 2023 and again in the first five months of 2024.

Continuing claims rose by 2,000 to 1.792 million in the week ending May 25 from a downward revised 1.790 million in the previous week (was 1.791 million). The four-week moving average of continuing claims, which smooths out some of the weekly volatility in this data set, edged up by 3,000 to 1.789 million from an unrevised 1.786 million in the previous week.

While UI Claims are still at healthy levels in a historical context, the labor market is becoming better balanced between demand for and supply of workers, which will help moderate upward wage pressures, especially as legal immigration has risen by over 1 million in each of the past two years. This is a theme that Chairman Jerome Powell discussed at his post-May 1 Federal Open Market Committee meeting press conference. We expect further evidence of a better-balanced labor market in tomorrow morning’s May jobs report. We forecast that payroll jobs rose by close to 200,000, the unemployment rate held steady at 3.9% and average hourly earnings rose by 0.3%, keeping the year-over-year rise at 3.9%.

PNC expects that this labor market moderation and slower wage and price inflation data for May, June and July will pave the way for rate cuts of 25 basis points at both the September and December 2024 FOMC meetings, with additional cuts in the first half of 2025. The Bank of Canada and the ECB started a rate cutting cycle this week, with both cutting their benchmark rates by 25 bps. The Fed will start later in this global Central Bank rate cutting process.