Investors may have interpreted the fresh data as a sign of things to come for the US economy
The major US stock market indexes slipped on Thursday morning following the release of fresh Consumer Price Index (CPI) and unemployment data.
The Bureau of Labor Statistics (BLS) reported year-over-year CPI growth of 2.4%, versus the 2.3% growth that economists had anticipated. Furthermore, the U.S. Department of Labor disclosed that initial unemployment claims for the week ending on October 5 increased to 258,000, while economists had only expected 230,000.
The market wasn’t panicked, but the major indexes, including the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite, all notched downwards as traders weighed the fresh data.
Every data point counts
In the wake of the Federal Reserve’s “jumbo” 50-basis-point interest rate cut last month and the assumption that the central bank will enact two more rate cuts this year, this morning’s unemployment and CPI data will have been keenly anticipated by investors.
However, September’s 2.4% CPI growth print wasn’t a particularly wide miss, and still demonstrated improvement over August’s 2.5% print.
In any case, the September CPI growth rate was the lowest it’s been since February 2021. Consequently, the major U.S. stock market indexes were only slightly down on Thursday morning, and there was no overall sense of panic.
Moreover, the nearly in-line CPI growth reading for September suggests that the Federal Reserve can probably continue to cut interest rates without prompting a massive spike in the inflation rate. Therefore, it shouldn’t be too surprising if the central bank enacts a 25-basis-point interest rate reduction in its November meeting.
Surprise jump in initial jobless claims
In addition, the market weighed a surprising jump in initial U.S. applications for unemployment benefits. The number of initial jobless claims rose by 33,000 month over month to 258,000 in September; economists had only expected that figure to increase by 5,000 to 230,000.
While striking, Hurricane Helene’s impact may have contributed to the spike in initial unemployment benefit claims.
Carl Weinberg, chief economist at High Frequency Economics, put September’s data into perspective. He assured that the current level of claims is “extremely low by historical standards” and that they “have not been near these levels since the 1960s”.
Consequently, the fresh employment data won’t likely prompt the Federal Reserve to enact more “jumbo” interest rate cuts to rescue the economy. It appears, then, that the argument for a 25-basis-point interest rate reduction in November is likely the base case unless further data releases suggest otherwise.
