Federal Reserve's December rate cut expectations strengthen! U.S. continuing jobless claims unexpectedly rise to the highest level in three years

According to the Zhitong Finance APP, the number of initial jobless claims in the United States dropped significantly to a seven-month low in the week before Thanksgiving, indicating that companies are not laying off workers in large numbers as some economists had predicted. This demonstrates the resilience of the U.S. labor market and suggests that consumer spending supported by the labor market is likely to remain strong, with the U.S. economy continuing to show steady growth. However, the number of continuing jobless claims unexpectedly rose to a three-year high, indicating that many unemployed American workers may be experiencing long-term unemployment. This leaves room for the Federal Reserve to consider another rate cut in December, but it is not enough to support the Fed in maintaining the same pace of rate cuts in 2025.

Data released on Wednesday showed that in the week ending November 23, new jobless claims decreased by 2,000 to 213,000, better than the economists' consensus expectation of around 216,000. The revised initial jobless claims figure for the previous week was 215,000, a slight increase compared to the unadjusted figure. Due to the Thanksgiving holiday on Thursday, the report was released a day early.

There is no doubt that the number of initial jobless claims has significantly declined from the nearly one-and-a-half-year high in early October, when claims were affected by hurricanes and strikes at Boeing and another aerospace company.

However, finding jobs for the unemployed is more difficult compared to the high inflation period of previous years, and the continued increase in the number of continuing jobless claims reinforces this view. In the week ending November 16, the number of individuals continuing to receive benefits after initially obtaining unemployment assistance unexpectedly increased by over 9,000, seasonally adjusted to about 1.907 million, reaching the highest level since November 2021. Therefore, some economists expect that although employment numbers are likely to continue rebounding, the unemployment rate in November may remain unchanged or even rise slightly.

However, the lack of widespread layoffs and the still relatively low unemployment rate have become the cornerstone of steady economic expansion in the United States. The resilient labor market can be said to provide the strongest driving force for the continued robust consumer spending in the U.S., where consumer spending accounts for 70%-80% of GDP.

Recent economic data has revealed the same signal: despite ongoing core inflation pressures, consumers continue to spend, bringing the U.S. economy ever closer to a "soft landing." Recent labor market data and unemployment claims indicate that U.S. companies are not aggressively hiring, but due to ongoing labor shortages, they are also reluctant to lay off employees. Companies are willing to retain staff, which helps sustain U.S. consumer spending and overall economic growth, avoiding a recession.

However, the biggest hidden danger for the U.S. labor market and economy may currently lie in the fact that, based on continued unemployment claims data, it is taking longer for those Americans who need new jobs or have just lost their jobs to find new employment. This is especially true as some small and medium-sized companies are waiting for interest rates to continue to decline and consumer spending to accelerate before adding a significant number of new employees.

The rising number of continued unemployment claims indicates that many unemployed workers are finding it increasingly difficult to secure new jobs.

The continued unemployment claims data covers the period during which the government surveyed the household unemployment rate in November. The U.S. non-farm unemployment rate has remained stable at 4.1% for two consecutive months, and the November non-farm employment report is crucial for the Federal Reserve's interest rate decision in mid-December. Currently, the interest rate futures market is still betting that the Federal Reserve will cut rates by 25 basis points in December, with the probability rising to nearly 70% after the unemployment claims were released. However, interest rate futures traders are betting that the Federal Reserve may adopt a "gradual and slow rate-cutting pace" next year—occasionally pausing rate cuts to assess economic data.

The minutes from the Federal Reserve's monetary policy meeting held on November 6-7, released on Tuesday, show that there seems to be significant disagreement among Federal Reserve officials regarding the extent to which further rate cuts may be needed. Deutsche Bank Chief Economist Matthew Luzzetti expects that the Federal Reserve will make its final rate cut of 25 basis points in December this year, after which the Federal Reserve may pause rate cuts throughout next year