U.S. Jobless Claims Drop Sharply, Easing Labor Market Fears

The number of Americans filing new applications for unemployment benefits fell more than expected last week, easing fears about the labor market's condition. Initial claims for state unemployment benefits dropped by 17,000 to a seasonally adjusted 233,000 for the week ending August 3, according to the Labor Department. This marks the largest drop in nearly 11 months, surpassing economists' forecasts of 240,000 claims.

The unexpected decrease comes after a surprising increase the previous week, largely attributed to temporary motor vehicle plant shutdowns and Hurricane Beryl. The prior week's figure was slightly revised up to 250,000 from the originally reported 249,000. Following this data release, S&P futures rose by about 0.7%, and benchmark Treasury yields climbed back above 4%. The U.S. dollar also strengthened against a basket of currencies.

"The talk of an imminent recession seems wide of the mark," commented Marc Chandler, chief market strategist at Bannockburn Global Forex. Investors reduced bets on a significant interest rate cut by the Federal Reserve next month, lowering the probability from 70% to 60% for a 50-basis-point reduction. Meanwhile, overall jobless claims have been trending upwards since June, influenced by motor vehicle plant retooling and the aftermath of Hurricane Beryl. Despite the fluctuations, layoffs remain low, with data showing June's layoffs rate was the lowest in over two years.

(With inputs from agencies.)