U.S. Markets close in 7 mins

Initial jobless claims — What you need to know in markets on Thursday

Myles Udland
Markets Reporter

We’re one day closer to the big jobs report that will cap the week on Friday.

Thursday will bring markets just the weekly report on initial jobless claims, as the earnings flow has slowed to a trickle.

On Wednesday, markets got the latest private payrolls data from ADP, which showed 298,000 jobs were added in February. Traditionally, this report hasn’t had a super-tight predictive relationship with the government’s own release due Friday, but certainly a strong reading from the ADP number indicates continued strength in the US labor market.

Friday’s jobs report is getting outsize focus from markets not only because all jobs reports matter, but also because this is expected to clear the way for a Federal Reserve rate hike the following Wednesday.

But with market pricing all but guaranteeing a Fed rate hike later this month, the more interesting narrative that could develop out of this report is the labor market as another place we’re seeing the Trump-based economic sentiment bump crop up.

The last several years have been among the strongest for job creation since the 1990s. While overall economic growth was just so-so under Obama, the labor market has been consistently impressive. The unemployment rate’s push under 5% has not only gotten markets more focused on additional action from the Fed, but it’s also started a conversation among economists about whether we’ve reached “full employment” in the US.

And given this years-long strength under Obama, it remained unclear how much slack there really was in the US labor market. Under the framework of a super-tight labor market, wages would have to rise, inflation would follow, and so too would Fed rate hikes and the end of the expansion.

But while much has been made of the recent divide between hard data and soft data — think payrolls and retail sales vs. consumer sentiment and manufacturing surveys — the labor market appears to be reacting to positive economic sentiment.

The whole reason to focus on soft data is that, in theory, this enthusiasm for economic prospects leads to actual decisions to hire, spend, and invest. The soft data unlocks the “animal spirits” that are supposed to kickstart the economy. Alternatively, soft data may not change the economic story at all. After all, the Atlanta Fed’s latest GDPNow tracker shows first quarter economic growth is expected to hit just 1.2%.

These things, of course, all unfold on a lag. And each month’s jobs report is, on its own, subject to all kinds of caveats and provisions and seasonal quirks.

But if you’re looking for a “turn” in the data — that moment when hope becomes reality — the monthly jobs number could be something to seize on for those bullish on the Trump economy.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

Read more from Myles here: