Fewer jobless claims may be a heartening indication the U.S. economy could ultimately cruise to a "soft landing" despite recession fears.
New applications for unemployment benefits last week dropped by 6,000 to 222,000 — the lowest since June.
The numbers in a category seen as a proxy for layoffs signal the economy is still adding jobs despite Federal Reserve Chair Jerome Powell's efforts to slow spending and rein in inflation, the Washington Examiner reported Monday.
"Overall, it's a good sign," Patrick Gourley, an associate professor of economics at the University of New Haven, told the news outlet, adding it's too early to tell if the numbers will cushion the Fed's desired "soft landing" — driving down inflation while avoiding the economy falling into a tailspin.
According to the Washington Examiner, engineering that soft landing is more difficult since the Fed had to hike interest rates aggressively to cool down the hottest inflation in decades — and most investors are betting on another 75-basis point hike this month.
The finagling comes as the Bureau of Economic Analysis announced the U.S. gross domestic product fell at a 0.6% annualized rate in the second quarter coming after a negative 1.6% GDP growth in the first quarter. Economists usually consider two quarters of negative GDP growth as a recession.
For now, the labor market is coming to the rescue, according to the Washington Examiner, with the economy averaging 378,000 new jobs over the past three months.
"A train can't just all of the sudden stop and go the opposite direction. The brakes get slammed … but it takes a long time to stop. And same with accelerating a train: It just all the sudden doesn't start going like a car does," warned Gourley.
With the Fed raising rates, it's normal to expect an economic slowing, but what isn't clear is how long that will take, he said.
Gourley told the news outlet because the labor market has proven resilient, Powell being able to pull off a soft landing is "within the realm of possibility." He also said compared with a couple of months ago, the odds of a soft landing might be "slightly better."
Gourley pegged the odds of recession at more than 50%, warning, however, he's got a low degree of confidence in those odds.
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