First-time applications for U.S. unemployment benefits increased last week, with the number of people on jobless rolls rising to a 2.5-year high towards the end of June. This trend aligns with a gradual cooling in the labor market.
Ebbing labor market momentum and abating inflation pressures keep the Federal Reserve on track to start cutting interest rates this year. Financial markets are hopeful that the easing cycle could begin in September. Fed Chair Jerome Powell mentioned that the economy is back on a “disinflationary path,” but stressed the need for more data before making any cuts.
“The labor market is still historically strong, but not quite as strong as it was in 2022 and early 2023,” said Gus Faucher, chief economist at PNC Financial.
Initial claims for state unemployment benefits rose by 4,000 to a seasonally adjusted 238,000 for the week ended June 29, according to the Labor Department’s report on Wednesday. This report was released a day early due to the Independence Day holiday. Economists polled by Reuters had forecast 235,000 claims for the latest week. Unadjusted claims increased by 13,049 to 238,149.
Notable increases in applications were reported in New York, California, New Jersey, Georgia, Illinois, Iowa, Kentucky, and Michigan, which more than offset declines in Connecticut and Maryland. Claims have moved to the upper end of their 194,000-243,000 range this year, partly due to a rise in layoffs and difficulties adjusting data for seasonal fluctuations during holidays. Volatility could persist after the July 4 holiday, as auto manufacturers typically idle assembly plants for retooling in the summer, but the timing is uncertain.
The labor market is steadily cooling, with the government reporting on Tuesday that there were 1.22 job openings for every unemployed person in May, close to the average of 1.19 in 2019.
The ADP Employment report showed private payrolls increased by 150,000 jobs in June after rising 157,000 in May. Economists polled by Reuters had forecast an increase of 160,000 jobs. The U.S. central bank has maintained its benchmark overnight interest rate in the 5.25%-5.50% range since last July and has hiked its policy rate by 525 basis points since 2022 to control inflation.
The number of people receiving benefits after an initial week of aid increased by 26,000 to a seasonally adjusted 1.858 million during the week ending June 22, the highest level since late November 2021. This increase in continuing claims data has been influenced by a policy change in Minnesota that allowed non-teaching educational staff to file for unemployment benefits during the summer break, a bump expected to fade when schools reopen in the fall.
A report from global outplacement firm Challenger, Gray & Christmas showed that U.S.-based employers announced 48,786 job cuts in June, down 23.6% from May. Planned layoffs were 19.8% higher compared to June last year.
The government is expected to report on Friday that nonfarm payrolls increased by 190,000 jobs in June after rising 272,000 in May, according to a Reuters survey of economists. The unemployment rate is forecast to remain unchanged at 4.0%.
