Jobless claims hold steady as pending home sales plunge

REAL ECONOMY BLOG | September 28, 2023

Authored by RSM US LLP

The labor market continued to show resilience even as higher interest rates took a further toll on pending home sales.

Initial jobless claims inched up by only 2,000 last week to 204,000, remaining below the pre-pandemic average, while pending home sales plunged by 7.1% in August after July’s number was revised down to a 0.5% increase.

But new claims for unemployment benefits won’t stay that low as the impact of the United Auto Workers strike and a looming government shutdown is felt. It won’t be a surprise if initial claims rise close to or reach the 250,000 threshold that we view as indicating the onset of a recession.

For now, such a spike would not be too concerning if the strike and the government shutdown were resolved.

In all cases, we do not expect the Fed to keep hiking rates in November given the volatility and uncertainties from those headwinds. If the government is shut down and it lasts into October, the Fed would not be able to rely on new hard data—especially on jobs and inflation—to make its decisions.

To blindly throw darts and raise rates in the absence of data would not be wise. The economy will most likely post a strong growth number this quarter.

But with Thursday’s revision to second-quarter gross domestic product and to economic data from 2017 to 2022, American consumers’ financial positions were not as strong as we thought. This is reflected in the sharp downward revision to the savings rate, which fell from 9.4% to 8.3% over the five-year period.

When that data is added to the impact of the UAW strike and a potential government shutdown, the economy will likely slow materially in the final quarter.