Low unemployment rate as a friend of inflation
A strong labor market is the foundation of any healthy economy, we can probably all agree on that. More people are employed, have a regular income, and thus consumption grows. But higher consumption also leads to inflationary pressures, which is something no one wants in the current situation (October 2022). That is why too strong a labour market is currently perceived negatively. On the other hand, negative news such as an increase in unemployment claims or a lower than expected number of new jobs is positive for the markets. How is this possible?
Everything is related to the monetary policy of central banks. They are currently raising interest rates practically all over the world, which in turn makes credit more expensive. The aim of this action by the central banks is to reduce consumption and gradually reduce prices. This whole process takes months or years, of course. If interest rates are rising in the market and consumption is falling, then the logical outcome of this situation is redundancies. Companies are not selling the expected quantities of their products and, instead of expanding their production and recruiting new employees, they have to resort to the opposite. The unintended side effect is an economic slowdown, which is practically inevitable in order to reduce inflation.
If unemployment is rising and the number of new jobs is falling, this is a signal that the current level of interest rates is restrictive for the economy. In this case, the market is thus looking ahead and assuming that the central bank will not have to tighten monetary policy as strongly as might have been expected. This is of course positive in the long run - it means a gradual reduction in inflation and also the prospect of interest rates being cut again, which will then stimulate higher consumption and economic growth once more. The reality is not always so straightforward, of course, but economic theory speaks clearly.