Jobless claims surge, signalling slowdown in labour market

The number of Americans filing for unemployment benefits surged to the highest level in 10 months last week. This surge in jobless claims raised concerns about a cooling labour market amid persistently high interest rates.

According to the Labour Department’s report released Thursday, unemployment claims for the week ending June 8 jumped by 13,000 to 242,000, significantly exceeding the analysts’ forecast of 225,000.

This marks the highest level of new claims since August 2023.

The four-week average of claims, which helps to smooth out week-to-week fluctuations, also climbed to 227,000—an increase of 4,750 from the previous week and the highest since September.

Jobless cannot secure new employment?

Weekly unemployment claims are a key indicator of layoffs and the broader health of the job market. Despite the recent uptick, claims have generally remained historically low since the massive job losses triggered by the COVID-19 pandemic in early 2020.

“While layoffs remain low, the increase in claims may suggest that those losing their jobs are finding it harder to secure new employment,” explained Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “This would align with a slower pace of hiring and fewer workers voluntarily leaving their jobs.”

Sustained layoffs at this level could influence the Federal Reserve’s interest rate decisions. The Fed has raised its benchmark rate 11 times since March 2022 to combat four-decade-high inflation, aiming to cool an overheated labour market and curb wage growth.

Economists had predicted that these rapid rate hikes might push the economy into recession.

Unemployment shoots up

In May, U.S. employers added a robust 272,000 jobs, an uptick from April, indicating continued confidence in the economy despite high interest rates. However, the unemployment rate edged up to 4% in May, ending a 27-month streak of unemployment below 4%, the longest such run since the late 1960s.

Moreover, the number of job openings fell to 8.1 million in April, the lowest since 2021, further signalling a potential slowdown. While layoffs remain low, several high-profile companies, particularly in the tech and media sectors, have announced job cuts.

Currently, 1.82 million Americans are receiving jobless benefits, an increase of 30,000, marking the highest number since early this year.

As the labour market shows signs of cooling, all eyes are on the Federal Reserve and its next moves to balance economic growth and inflation.