After today’s PCE print met the street’s expectations and Core PCE edged closer to the Fed’s target, the focus may shift towards the labor market moving forward.

In recent weeks, many Fed speakers have changed their tone regarding the current state of the economy, inflation progress, and the labor market. While the battle against inflation is far from over, market attention is beginning to turn towards the labor market, especially as weekly initial claims show an upward trend. Notably, the 4-week moving average of initial claims has risen from 204,000 at the start of the year to 236,000 as of yesterday's report, marking a 15% increase year-to-date and a 12.25% growth since the end of April.

It’s important to note that the concern lies not in the nominal value but in the rate of change. Historically, averaging 236,000 initial claims per week is still relatively low, indicating a tight labor market. This is particularly significant in the post-Covid era, which saw an acceleration in early retirements among the Baby Boomer generation, creating a labor shortage across multiple sectors.

The upcoming JOLTs data, to be released on Tuesday, June 2nd, will provide further insights into employer behavior in the current environment. Additionally, the Non-Farm Payroll data, scheduled for release on Friday, July 5th, will offer more comprehensive information on the labor market's health. Until the monthly Non-Farm Payrolls confirm a slowdown in job additions, the rise in initial claims primarily suggests churn in the labor market.

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