• US unemployment claims have hit a four-month low, indicating strong job growth.
• The US central bank has cut interest rates for the first time since 2020 to maintain low unemployment.
• Despite a cooling labor market, layoffs remain low, supporting the economy through solid consumer spending.
• The housing market struggles with high home prices, despite the central bank's interest rate cut and improving supply.

The number of Americans filing new applications for unemployment benefits has reached a four-month low, indicating robust job growth in September. This data, released last week, confirms that the economy continued to expand in the third quarter. The weekly jobless claims report from the Labor Department, considered the most timely data on the economy's health, also revealed that jobless rolls have shrunk to levels last seen in early June.

In a move to sustain this positive trend, the U.S. central bank cut interest rates by 50 basis points to the 4.75%-5.00% range on Wednesday. This is the first reduction in borrowing costs since 2020. Federal Reserve Chair Jerome Powell stated that this decision was intended to demonstrate policymakers' commitment to maintaining a low unemployment rate.

Carl Weinberg, chief economist at High Frequency Economics, echoed Powell's sentiments, stating, These hard numbers confirm the message delivered by Fed Chair Powell yesterday. He further added, The labor market is softening but not imploding as you would expect in a recession. Fed policy is aimed at supporting the job market before a recession shapes up.

Unemployment Claims and Labor Market Trends

The Labor Department reported that initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 219,000 for the week ended Sept. 14, the lowest level since mid-May. This figure was lower than the 230,000 claims forecasted by economists polled by Reuters.

However, unadjusted claims increased by 6,436 to 184,845 last week, with notable rises in California, Texas, and New York. This increase more than offset a decrease of 2,055 in Massachusetts. Despite this, the labor market has cooled considerably, with a significant step-down in hiring and a decrease in job openings. This has raised concerns of a deterioration in conditions that could undermine the economic expansion.

Nevertheless, layoffs remain low, which is helping to prop up the economy through solid consumer spending. Economic growth estimates for the third quarter are around a 3.0% annualized rate. The economy grew at a 3.0% pace in the second quarter, above the 1.8% rate that officials at the Fed see as its longer-run, non-inflationary potential.

Housing Market Struggles Amid Economic Growth

While the labor market is holding up, the housing market is struggling to regain its footing as persistently high home prices despite improving supply keep potential buyers on the sidelines. A separate report from the National Association of Realtors showed existing home sales fell 2.5% in August to a seasonally adjusted annual rate of 3.86 million units, the lowest in 10 months. The median existing home price increased 3.1% from a year earlier to $416,700, the highest on record for any August.

Declining mortgage rates, which have retreated to 1-1/2-year lows, could entice more homeowners to put their homes on the market. Most homeowners have mortgage rates below 4% and the so-called rate lock starved the market for previously owned homes of supply. Lower borrowing costs could, however, stimulate demand that outpaces supply, keeping house prices elevated.

Powell told reporters on Wednesday that the real issue with housing is that we have had and are on track to continue to have not enough housing, adding this is not something that the Fed can really fix, but I think as we normalize rates, you will see the housing market normalize.