In a surprising twist, weekly unemployment claims in the U.S. skyrocketed to their highest levels since late 2021, painting a stark picture of the nation’s labor market.
With a surge driven primarily by increases in Ohio and California, the unexpected jump has sent ripples through the economic community. However, experts are divided on whether this spike should be a cause for alarm or simply seen as part of the data’s inherent volatility.
Jobless Claims Break Recent Records
The U.S. Labor Department’s latest report highlighted an unsettling increase of 28,000 claims to a seasonally adjusted total of 261,000 for the week ending June 3rd. Economists had predicted a much lower figure of 235,000 for the week, rendering this development noteworthy.
Despite the spike, Conrad DeQuadros, a senior economic advisor at Brean Capital in New York, advised caution in interpreting these figures.
According to DeQuadros, the data’s weekly fluctuations and the localized nature of the increase necessitate waiting for additional confirmation before drawing definite conclusions about layoffs.
Notably, the unadjusted claims saw a less dramatic increase of only 10,535, raising the total to 219,391. Ohio witnessed a surge of 6,345 applications, while California observed a significant increase of 5,173 filings.
The four-week moving average of claims, often considered a more reliable indicator of labor market trends due to its ability to offset weekly volatility, also saw a rise of 7,500, landing at 237,250.
Labor Market Under the Microscope
Despite the unsettling increase in jobless claims, the U.S. labor market seems to be decelerating at a relatively slow pace.
Recent reports suggest that the U.S. economy added 339,000 jobs in May, with the unemployment rate sitting at a historically low figure of 3.7% despite it being a seven-month high.
The services sector, including leisure and hospitality, continues to fuel job growth, with these industries catching up after a two-year struggle to find workers.
Other sectors such as healthcare and education are also showing signs of rebounding following accelerated retirements during the pandemic.
However, certain economists view the rise in claims as a warning sign of fissures in the labor market, pointing to the potential negative impact of the Federal Reserve’s cumulative interest rate hikes of 500 basis points since March 2022.
They argue that layoffs might spread from tech and interest rate-sensitive industries like housing, finance, and manufacturing to other parts of the economy.
Recent data from the Institute for Supply Management (ISM) has sparked further concern. ISM’s services PMI demonstrated a dip in May, with many businesses expressing caution about hiring due to uncertainty about economic direction.
Moreover, manufacturing PMI remained below the crucial 50 threshold for the seventh consecutive month, mirroring conditions last seen during the Great Recession.
Nevertheless, the decrease of 37,000 in continuing claims to 1.757 million during the week ending May 27 offers a glimmer of hope. This figure suggests that laid-off workers are still able to find jobs, with 1.8 job openings available for every unemployed person in April.
As such, while the sudden rise in weekly unemployment claims is concerning, economists urge careful interpretation of these figures to avoid premature judgments about the U.S. labor market’s overall health.
