Investors came into 2023 with the financial markets operating under the premise of arguably the most widely anticipated recession in decades. Well, here we are, more than halfway through the second quarter, and investors are still waiting. Interestingly, a “technical” recession did occur last year, but it seemed as if a host of commentaries went out of their way to downplay the two consecutive negative quarters of real GDP that were registered. Fast forward to the present, and it appears the Treasury market can’t wait to see the next sign a downturn could be coming.

There is no doubt recent economic data here in the U.S. has revealed signs of both slowing and, in some cases, suggesting, just maybe, that a negative real GDP quarter could be coming around the bend. However, there is one integral part of the economic landscape that has thus far refused to point the markets in the recession direction: the labor markets.

With June quickly approaching, the lion’s share of available data on the employment front continues to show a solid backdrop. Indeed, the unemployment rate is at a historically low 3.4%, and even though job growth has moderated a bit of late, it is still averaging +222,000 over the last three months. Throw on top of that continued annualized gains of more than +4% for wages, and you continue to have an underlying layer of support for the key consumer sector of the economy.

Another important indicator for labor market activity is weekly initial jobless claims. This set of data has been receiving increasing attention of late, not only because of its leading indicator tendency but also due to some unusual fluctuations. Earlier this year, overall claims numbers were continuing to reside at what some believed to be abnormally low levels. Due to seasonal adjustment revisions that were implemented in early April, the doubters were proven correct, to a certain extent, as the total number of new claimants did rise but still remained historically on the lower end of the scale.

What about the last two weeks’ worth of data? At first, the headlines “screamed” that weekly claims had risen to their highest level since October 2021. Yes, this could finally be it…the leading sign that the labor markets were finally showing some chinks in the armor. Then a funny thing happened when last week’s numbers were released…weekly claims had fallen by the most since 2021.

OK, what gives? Well, apparently, the higher-than-expected increase for the week of May 5 was due to a fraud-inflated jump, and the decline in the most recent data was the result of a reversal in these fraudulent numbers, with the state of Massachusetts being specifically mentioned.

The bottom line is that the absolute level of weekly claims continues to rest at rather low pre-COVID-19 levels. In fact, total claims were roughly 100,000, if not more, above their current reading prior to the last five recessions going back to 1980. Against this backdrop, the labor market does not appear to be on the immediate verge of supporting the “inevitable recession” narrative. However, in this data-dependent world the markets now live in, investors don’t have to necessarily wait a month for a new jobs report; they can get a snapshot of where the labor markets may be potentially headed each week with the initial claims figures.