WASHINGTON – The number of Americans filing new applications for unemployment benefits dropped more than expected last week, but volatility around this time of the year as automobile manufacturers idle plants for retooling makes it harder to get a clean read on the labor market.
Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 222,000 for the week ended July 6, the lowest level since late May, the Labor Department said on Thursday. Economists polled by Reuters had forecast 236,000 claims in the latest week.
The claims data included the Independence Day holiday. Claims tend to be volatile around holidays, and automakers typically shut down assembly plants starting July 4 week to retool for new models.
The timing can, however, vary from one manufacturer to the next, which can throw off the model that the government uses to smooth out the data for seasonal fluctuations.
While this is likely injecting noise into the claims data, signs are mounting that the labor market is losing steam as hefty interest rate increases from the Federal Reserve in 2022 and 2023 cool economic activity.
There were 1.22 job openings for every unemployed person in May, not much higher than the 1.19 average in 2019. The unemployment rate rose to a 2-1/2-year high of 4.1% in June from 4.0% in May. Claims have since June been stuck in the upper end of their 194,000-243,000 range of this year.
Federal Chair Jerome Powell this week flagged risks to the labor market, telling lawmakers that “we have seen considerable softening.” Financial markets believe that this together with ebbing inflation pressures opened the door for the U.S. central bank to start cutting rates in September.
The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July. It has hiked its policy rate by 525 basis points since 2022 to tame inflation.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 4,000 to a seasonally adjusted 1.852 million during the week ending June 29, the claims report showed.
Though the so-called continuing claims data have been boosted by a policy change in Minnesota that came into effect last year allowing non-teaching educational staff to file for unemployment benefits during the summer break, the elevated level is also consistent with the rise in the jobless rate.
(Source: ReutersReuters)
