Jobless claims increased by 9,000 last week to 244,000, the highest level in nearly eight months, a sign that the labor market is starting to take a hit as the economy slows.
The weekly number of new applications for unemployment benefits is considered a forward-looking economic indicator because it is released every week, meaning it is much more of a real-time gauge of labor market health than the more comprehensive monthly jobs report. Rising jobless claims indicate that layoffs are trending up.
Initial jobless claims bottomed out in March at just 166,000 and have since risen by 78,000. It is becoming clearer each week that new claims are now moving on an upward trajectory, which is expected to translate into worse jobs reports coming down the line and could portend a recession. The monthly average of claims also rose to 235,750, the highest since December.
“Net, claims rose last week to the highest level since November 2021. The underlying direction has shifted from a downtrend to one of a gradual increase,” said Rubeela Farooqi, chief U.S. economist with High Frequency Economics.
AVERAGE REAL EARNINGS PLUNGED 3.6% IN PAST YEAR AS INFLATION MADE WORKERS POORER
Still, despite the gradual rise in jobless claims over the past several weeks, new claims are at a decent level, historically speaking. Bill Adams, chief economist for Comerica Bank, said on Thursday that while the level of claims is still “OK,” the trajectory of new applications for unemployment is “concerning.”
Continued claims for unemployment insurance dropped 41,000 last week, and the insured unemployment rate is tied for the lowest level since 1971. The overall unemployment rate, taken from the monthly jobs report, is 3.5% — very low by historical standards. In other words, the labor market is still strong, even if there are early signs that it may be weakening.
Inflation has been the biggest economic detriment this year, with consumer prices increasing at a historic 9.1% annual pace for the month of June. Inflation as measured by producer wholesale prices also ticked up to a smoldering 11.3% for the year ending in June.
In order to tamp down prices, the Federal Reserve is working to raise interest rates and slow down demand, a move that could lead to a recession.
There are concerns that the Fed’s aggressive tightening cycle will toss the economy into a recession, and jobless claims are one of the first economic indicators that will show the jobs market is heading into recessionary territory.
Last month, the central bank hiked its interest rate target by a whopping three-fourths of a percentage point for the first time since 1994. The Fed typically raises rates by a quarter of a percentage point, or 25 basis points, so the June hike was synonymous with three simultaneous rate increases.
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The Fed’s monetary policy committee will meet again later this month, and it may jack up its rate target by another 75 basis points, although more analysts are starting to think that the central bank could act even more aggressively and raise interest rates by a full percentage point.
