WASHINGTON (Reuters) - The number of Americans filing applications for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong even as the economy is slowing.

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson

The jobless claims report from the Labor Department on Thursday, however, does not fully account for the impact of the recent escalation in the bitter trade war between the United States and China, which has led to an inversion of the U.S. Treasury yield curve and raised the risk of a recession.

Worries about the trade war’s effect on the economic expansion, the longest on record, prompted the Federal Reserve to cut interest rates last week for the first time since 2008.

Financial markets have fully priced in another rate cut next month. Expectations for a 50-basis-point cut at the Fed’s Sept. 17-18 policy meeting have also risen.

“Initial claims have been sending a reasonably upbeat message about conditions in the labor market,” said Daniel Silver, an economist at JPMorgan in New York. “Today’s report likely doesn’t contain much information about the period since the recent escalations in trade tensions.”

Initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 209,000 for the week ended Aug. 3, the government said. Economists polled by Reuters had forecast claims would be unchanged at 215,000 in the latest week.

“Though equity market volatility and low bond yields are driving pessimism about the economic outlook ... we would have to see initial claims sustain a rise to the 250,000 level to become concerned about recession,” said John Ryding, chief economist at RDQ Economics in New York.

U.S. stocks were trading higher partly due to unexpectedly better Chinese data and a steadying of the yuan, which provided some relief to investors alarmed by the rise in U.S.-China trade tensions. The dollar .DXY was little changed against a basket of currencies, while U.S. Treasury prices fell.

INVENTORY ACCUMULATION SLOWING Last week’s drop in claims pushed them to the lower end of their 193,000-244,000 range for this year. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, edged up 250 to 212,250 last week.

Though hiring has slowed, the pace of job gains remains well above the roughly 100,000 needed per month to keep up with growth in the working-age population.

Nonfarm payrolls increased by 164,000 jobs in July, down from 193,000 in June. Job growth over the last three months averaged 140,000 per month, the lowest in nearly two years, compared to 223,000 in 2018. The moderation in employment growth partly reflects a shortage of workers.

“While net employment growth depends on gross hiring as well as the pace of layoffs, and the trend in payrolls gains may have moderated a bit, major weakening in employment growth is invariably associated with an uptrend in claims,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York.

The economy grew at a 2.1% annualized rate in the second quarter, slowing from the first quarter’s brisk 3.1% pace. Growth is seen below a 2.0% rate in the July-September quarter.

But economists expect the government will lower its second-quarter GDP growth estimate to around a 1.8% rate later this month after a separate report from the Commerce Department on Thursday showed wholesale inventories were unchanged in June instead of rising 0.2% as reported last month.

The component of wholesale inventories that goes into the calculation of gross domestic product edged up 0.1% in June.

That suggested the pace of inventory accumulation was much slower than the government had assumed when it compiled its advance GDP report last month. The government is scheduled to publish its second GDP estimate for the April-June period on Aug. 29.

According to JPMorgan’s Silver, the June wholesale data implied inventories increased at a $66 billion rate in the second quarter, instead of the $71.7 billion pace estimated in the advance GDP report.

That means inventories chopped 1.0 percentage point from GDP, rather than the estimated 0.86 percentage point.

Some of the slowdown in inventory accumulation reflects a surge in consumer spending in the second quarter. Businesses are also carefully managing stock levels because of the darkening economic outlook.