A person arranges groceries at El Progresso Market in the Mount Pleasant neighborhood of Washington, DC on August 19, 2022.

Sarah Silbiger | Reuters

Initial filings for jobless claims fell to their lowest level in five months last week, a sign that the labor market is strengthening even as the Federal Reserve tries to slow things down.

Jobless claims totaled 193,000 for the week ended Sept. 24, a revised total below the previous week and a drop of 16,000 from the Dow Jones estimate of 215,000, according to a Labor Department report on Thursday.

The fall in claims was the lowest since April 23 and the first time since early May that claims fell below 200,000.

Continuous claims, which run back a week, fell by 29,000 to 1.347 million.

The strong labor numbers came amid the Fed’s efforts to cool the economy and reduce inflation, which is running at its highest level since the early 1980s. Central bank officials have pointed in particular to a tight labor market and growing pressure on wages as targets for policy tightening.

Stocks fell after the report, while Treasury yields were higher.

“The recent decline in layoffs comes against the backdrop of the Fed’s efforts to improve labor market conditions and lower inflation to its 2% target,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Capital markets have listened to the Fed, and investors are feeling the pain. But the jobs market? Right now, it’s not listening.”

There was more bad news for the Fed on the inflation front on Thursday.

The personal consumption expenditure price index, a favorite inflation gauge for the Fed, showed a 7.3% year-over-year price increase in the second quarter, the Commerce Department reported in its final GDP estimate for the period. That was above the 7.1% reading in the previous two Q2 estimates and a 7.5% increase in the first quarter.

Excluding food and energy, core PCE inflation was 4.7%, 0.3 percentage points higher than the previous two estimates but down from the 5.6% jump in Q1.

The Fed has raised interest rates five times in 2022 for a total of 3 percentage points, and officials have insisted on continuing to raise rates until inflation comes closer to the central bank’s 2% target.

“What we have to do to get back to price stability, because we can’t have a healthy economy, we can’t have good labor markets over time, is until we get back to price stability,” Cleveland Fed President Loretta Mester said in a statement Thursday morning. told CNBC’s “Squawk Box” in an interview.

However, the Cleveland Fed’s own inflation nowcasting gauge shows little improvement on the inflation front in September despite a sharp drop in gas prices. The gauge is showing an 8.2% rise in the headline consumer price index and a 6.6% rise in core prices, compared to August’s respective readings of 8.3% and 6.3%.

The BEA’s final estimate for Q2 GDP was a decline of 0.6%, unchanged from the previous estimate. It was the second consecutive quarter of negative GDP, which meets the generally accepted definition of a recession.

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