US: Initial Jobless Claims rose to 226K last week

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Initial Jobless Claims increased to 226K vs. the previous week.
Continuing Jobless Claims rose to 1.974M.

According to a report from the US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance increased to 226K for the week ending August 2. The latest print fell short of initial estimates (221K), and was higher than the previous week’s 219K (revised from 218K).

The report indicated a seasonally adjusted insured unemployment rate of 1.3%. Additionally, the four-week moving average decreased by 500, bringing it down to 220.75K from the revised average of the previous week.

Moreover, Continuing Jobless Claims went up by 38K to 1.974M for the week ending July 26.

Market reaction

The Greenback alternates gains with losses in the wake of the releases of weekly claims, motivating the US Dollar Index (DXY) to hover around the 98.20 zone.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.