After several weeks of declines, the number of new applications for unemployment benefits rose by 5,000 last week to 213,000, the Department of Labor reported Thursday morning, ending at least temporarily one of the most encouraging trends for the economy.
Rising jobless claims, a proxy for layoffs, is a sign that the labor market may be facing some turbulence, but the number is still very low by historical standards.
FED CONDUCTS MASSIVE RATE HIKE IN FACE OF STUBBORN SOARING INFLATION
In a trend that has surprised economists, jobless claims trended downward over the summer, even as conventional wisdom would be that they would rise as higher interest rates began affecting the economy.
“For now, businesses still appear to be reluctant to let go of workers,” Rubeela Farooqi, chief U.S. economist for High Frequency Economics, wrote Thursday morning. “But with monetary policy aimed at softening labor market conditions, demand for workers is set to moderate and layoffs are likely to pick up over time.”
The number of new claims for unemployment isn’t anywhere near where it was during most of the pandemic and has not risen to a rate that would suggest an imminent recession. Still, many economists are now predicting that a looming recession is a distinct possibility.
Rising jobless claims would be a key clue that the country’s super tight labor market may be starting to slow in response to the Federal Reserve aggressively raising interest rates. Driving up interest rates slows demand and can result in recessionary conditions.
At each of its last three meetings, the most recent of which was Wednesday, the central bank took a hawkish stance and jacked up rates by 75 basis points. The increases were so aggressive that, taken together, they have been analogous to nine conventional rate hikes in the span of just four months.
Even despite the rate hikes, the labor market has shown resiliency. The economy added 315,000 jobs in August, and the unemployment rate ticked up slightly to 3.7%, near a five-decade low and around the ultralow level it was at right before the pandemic.
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Fed Chairman Jerome Powell, though, has warned that the tight labor market isn’t likely to last and that there will be some economic “pain” as higher rates begin to cut into the country’s economic growth and jobs.
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell recently said. “Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
