US jobless claims data could reveal if hiring slowdown turns into layoffs

The weaker-than-expected US jobs report from last Friday continues to signal a softening labour market, though one piece of the puzzle still appears inconsistent.

Non-farm payrolls increased by only 29k in September, falling well short of the 90k forecast, while the unemployment rate ticked up to 4.2%. Additionally, figures for July and August were revised down by a combined 60k, and monthly wage growth decelerated to just 0.1%. This provides a fairly strong indication that hiring is losing steam.

Yet to date, that softness has not led to a significant increase in job cuts.

In the prior week, US initial jobless claims dropped to 197k, keeping them near multi-decade lows. Claims remain remarkably low even as the pace of hiring has slowed considerably.

That may explain why the labour market still resembles a low-hire, low-fire scenario. If anything, it suggests companies are more hesitant to add staff but are retaining their existing workforce.

Against that backdrop, Thursday's jobless claims data merits a bit more attention, especially following the payrolls miss.

That said, a modest uptick in a single weekly figure should not be overinterpreted. The headline number can be volatile, and a move slightly above 200k does not suddenly indicate the labour market is collapsing.

What would carry more significance, in my view, is a clearer upward trend that pushes claims away from the subdued levels seen recently. In other words, the trend matters most. Such a move would provide some evidence that weaker hiring is beginning to translate into actual job losses.

Last week's softer jobs report has already lowered expectations for another Federal Reserve rate hike this month. Another weak labour market signal would only reinforce that view.

On the other hand, another low claims reading would continue to suggest that Friday's payrolls weakness is primarily a hiring story rather than a layoffs story. That could take some of the dovish edge off the jobs report.

To sum up, this week's claims data should shed more light on whether the US labour market is simply hiring less or starting to fire more.