The number of Americans filing new claims for unemployment benefits surged to the highest level in more than 1½ years last week, but layoffs are probably not accelerating as the data covered the Memorial Day holiday, which could have injected some volatility.
The largest increase in applications in nearly two years reported by the Labor Department on Thursday was driven by rises in Ohio, Minnesota and California. After rampant fraud in Massachusetts briefly boosted claims to a 1½-year high in May before being revised away, economists cautioned against reading too much into the latest rise.
“The jump in claims could be a sign of a pickup in layoffs, but given the volatility of claims from week-to-week, it is too soon to reach that conclusion,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.
“The narrowness of the increase in claims by state is a further factor suggesting we should wait for additional confirmation before concluding layoffs have picked up, especially given the fraud in Massachusetts recently.”
Initial claims for state unemployment benefits jumped 28,000 to a seasonally adjusted 261,000 for the week ended June 3, the highest level since October 2021. Economists polled by Reuters had forecast 235,000 claims for the latest week.
Unadjusted claims increased only 10,535 to 219,391 last week, with applications in Ohio surging 6,345 and filings in California shooting up 5,173. Claims increased 2,746 in Minnesota. Applications in Ohio have risen in recent weeks, attributed by the state to layoffs in the manufacturing, automobile, and transportation and warehousing industries. Auto manufacturers usually close plants in summer for retooling.
“Some auto plants take temporary breaks during the summer although the dates change slightly every year which makes it hard for seasonal factors to capture correctly,” said Gisela Hoxha, an economist at Citigroup in New York.
“This implies that there might be some additional volatility in initial claims over the coming months.”
The four-week moving average of claims, considered a better measure of labour market trends as it strips out week-to-week volatility, rose 7,500 to 237,250.
Economists saw no impact on monetary policy from the claims data. The Federal Reserve is expected to keep its policy rate unchanged next Wednesday for the first time since March 2022 when it embarked on its fastest interest rate hiking campaign since the 1980s. The U.S. central bank has raised its policy rate by 500 basis points since then.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
“Claims remain well below our estimate of 305,000 to be consistent with no monthly job growth, and it will take a more sustained increase in the level of claims to influence the Fed’s monetary policy,” said Matthew Martin, a U.S. economist at Oxford Economics in New York.
The government reported last week that the economy added 339,000 jobs in May. Although the unemployment rate increased to a seven-month high of 3.7 per cent from 3.4 per cent in April, it remains low by historical standards.
Job growth is being driven by the services sector, including the leisure and hospitality category, which is still catching up after businesses struggled to find workers over the last two years. Industries like health care and education also experienced accelerated retirements during the COVID-19 pandemic.
For some economists, however, the jump in claims suggested that layoffs were spreading from the technology sector and the interest rate-sensitive industries like housing, finance and manufacturing, which made headlines last year and early this year, to other segments of the economy.
“Headline-grabbing layoff announcements, however, typically take some time to be put into effect,” said Stuart Hoffman, a senior economic adviser at PNC Financial in Pittsburgh, Pennsylvania. “This delay accounts for the recent rise in initial claims. This effect could also portend another escalation in the months to come, alongside the ever-widening net of jobs cuts spreading across industries.”
The labour market is gradually cooling.
The Institute for Supply Management (ISM) reported on Monday that its services PMI dropped in May, attributed mostly to weakness in employment. According to the ISM, comments from services businesses ranged from “we are trying to do more with the same staff,” to being “on a hiring freeze until there’s a better understanding of where the economy is headed.”
Overall, employers appear reluctant to let go of workers after difficulties finding labour during the pandemic.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 37,000 to 1.757 million during the week ending May 27, the lowest level since February, the claims report showed.
The low level of the so-called continuing claims suggests some laid off workers are still finding work easily, with 1.8 job openings for every unemployed person in April.