US weekly jobless claims at four-month low; corporate profits revised up

The number of Americans filing new applications for unemployment benefits dropped to a four-month low last week, suggesting that the labor market remained fairly healthy.

The upbeat outlook on the economy was underscored by other data on Thursday showing corporate profits increased at a more robust pace than initially thought in the second quarter. Strong profit growth should help to underpin the labor market and potentially shield the economy from a recession.

The economy's resilience could make it harder for the Federal Reserve to deliver another 50 basis points interest rate cut in November as some investors are hoping.

"The Fed's strong start to unraveling its monetary restraint with an aggressive 50 bps rate cut may not continue if the economy's ship remains well away from the shoals of recession," said Christopher Rupkey, chief economist at FWDBONDS.

"(Fed Chair Jerome) Powell does not want to see the unemployment rate tick any higher and the weekly jobless claims data suggest this will not be the case."

Initial claims for state unemployment benefits dropped 4,000 last week to a seasonally adjusted 218,000 for the week ended Sept. 21, the lowest level since mid-May, the Labor Department said. Economists polled by Reuters had forecast 225,000 claims for the latest week.

Unadjusted claims decreased 5,957 to 180,878 last week, with notable declines in New York and Texas. No state reported a rise in filings in excess of 1,000.

Though the labor market has lost momentum amid declining job openings and a step-down in hiring, layoffs have remained low and there are no signs of deterioration.

But a strike by about 30,000 machinists at Boeing BA.N, which has forced the aerospace company to announce temporary furloughs of tens of thousands of employees, including what it said was "a large number of U.S.-based executives, managers and employees" could boost claims in the weeks ahead.

Striking workers are not eligible for unemployment benefits, but the work stoppage could cause employment disruptions at Boeing's suppliers in addition to the temporary furloughs.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 13,000 to a seasonally adjusted 1.834 million during the week ending Sept. 14, the claims report showed.

The so-called continuing claims have dropped from more than 2-1/2-year highs touched in July, attributed to policy changes in Minnesota that allowed non-teaching staff in the state to file for unemployment aid during the summer school holidays.

The continuing claims data covered the week during which the government surveyed households for September's unemployment rate. Continuing claims fell between the August and September survey week. The jobless rate slipped to 4.2% in August after rising to 4.3% in July. The increase in the unemployment rate from 3.4% in April 2023 as a surge in immigration boosted labor supply has raised fears of rapid labor market deterioration.

The U.S. central bank last week cut interest rates by 50 basis points to the 4.75%-5.00% range, the first reduction in borrowing costs since 2020, which Powell said was meant to demonstrate policymakers' commitment to sustaining a low unemployment rate.

Financial market saw a roughly 54.2% chance of another half-percentage-point rate cut at the Fed's Nov. 6-7 policy meeting, according to CME's FedWatch tool. The odds of a 25 basis points cut were around 45.8%.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury yields rose.

STRONG ECONOMIC GROWTH

A separate report from the Commerce Department's Bureau of Economic Analysis showed corporate profits including inventory valuation and capital consumption adjustments increased at a $132.5 billion annualized rate in the second quarter. They were revised up from the $57.6 billion pace estimated last month.

The revision reflected a sharp upgrade to domestic profits of nonfinancial corporations, which are now estimated to have increased $108.8 billion, instead of $29.2 billion. Income at the disposal of households was also solid.

As a result, gross domestic income growth, which measures economic activity from the income side, was revised up to a 3.4% rate last quarter from the initially estimated 1.3% pace. GDI rose at an upwardly revised 3.0% pace in the January-March quarter from the previously reported 1.3% rate.

Gross domestic product growth was unrevised at a 3.0% rate last quarter, in line with economists' expectations. In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data.

The government revised the national accounts data from the first quarter of 2019 through the first quarter of 2024. The revisions showed economic growth and corporate profits were stronger in 2023 than previously estimated.

The revision narrowed the gap between GDP and GDI, which some economists have argued suggested that GDP was overstating the economy's health.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 3.2% rate last quarter. That was revised up from the previously estimated 2.1% pace. Gross domestic output advanced at a 2.3% pace in the first quarter, revised up from the previously reported 1.4% pace.