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The number of Americans filing new claims for unemployment benefits rose last week to the highest level in more than eight months, offering more evidence that the labor market was steadily cooling.
The weekly jobless claims report from the Labour Department on Thursday, the most timely data on the economy’s health, followed news last week that the economy added the fewest jobs in six months in April, while job openings dropped to a three-year low in March.
Ebbing labor market momentum has put two interest rate cuts from the Federal Reserve this year back on the table.
“The labour market shows some signs of rebalancing with fewer job openings posted around the country, and now company layoffs are picking up, hinting at caution on the part of companies as they weigh the outlook for the second half of the year,” said Christopher Rupkey, chief economist at FWDBONDS.
Initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 231,000 for the week ended May 4, the highest level since the end of last August. The increase was the largest in nearly four months.
Economists polled by Reuters had forecast 215,000 claims in the latest week. Claims broke above the 194,000-225,000 range, which had prevailed since the start of the year.
Some of the rise last week was likely related to seasonal issues following the recently ended school spring breaks.
“Given that the varied timing of school spring breaks, and holidays like Easter and Passover, makes the seasonal adjustment process very complicated, we often see volatile readings in the seasonally adjusted data around this time of year,” said Daniel Silver, an economist at JPMorgan.
Unadjusted claims shot up 19,690 to 209,324 last week, with filings in New York surging by 10,248. Pantheon Macroeconomics Chief Economist Ian Shepherdson speculated that the jump could reflect “Citigroup employees laid off in January but paid through April making their first claims.”
There were also sizeable increases in applications in California, Illinois, Indiana and Texas. Only Iowa reported a drop in claims in excess of 1,000.
Sentiment surveys including the Institute for Supply Management and the NFIB have been flagging a sharp slowdown in the labor market. Companies, however, appear to be cutting back on hiring while largely holding on to their workers after struggling to find labor during and after the COVID-19 pandemic.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury prices were mixed.
The labour market is steadily rebalancing in the wake of 525 basis points worth of interest rate hikes from the U.S. central bank since March 2022 to dampen demand in the overall economy.
Financial markets expect the Fed to start its easing cycle in September. A handful of economists believe the first rate cut will come in July. Inflation data next week, which is expected to show a moderation in monthly consumer price increases after three straight months of strong readings, could offer fresh clues on the timing of the much-awaited rate cut.
The central bank last week left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July. While economists expect the labor market to soften this year, they did not believe that last’s week surge in claims was the beginning of that trend.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 17,000 to a seasonally adjusted 1.785 million during the week ending April 27, the claims report showed.
“This still very low level of continuing claims is further evidence that the big jump in initial claims in early May is not the start of a persistent rise in laid-off workers but bears close watching,” said Stuart Hoffman, senior economic advisor at PNC Financial.
“The labour market is becoming better balanced between demand for and supply of workers which will help moderate upward wages pressures, especially as legal immigration has risen by over 1 million in each of the past two years.”
