Weekly jobless claims surged last week, signaling a cooling labor market.
The Department of Labor reported 243,000 initial jobless claims for the week ending July 13, an increase from 222,000 the previous week and higher than the 229,000 anticipated by economists. This figure matches the highest level of weekly filings seen since August 2023.
Continuing applications for unemployment benefits also rose, reaching nearly 1.87 million for the week ending July 6, up from 1.85 million the previous week. This is the highest number since November 2021.
Jefferies US economist Thomas Simons attributed part of the increase to Hurricane Beryl, which displaced some workers. However, he noted that the recent trend in jobless claims points to emerging weaknesses in the labor market.
“The data of the past few weeks have been signaling incremental labor market weakness, albeit from a position of extreme strength,” Simons wrote in a research note. “It is still too early to tell if this is another step in the process of the labor market coming into better balance, or if it is the early stages of building momentum to the downside.”
Signs of labor market weakness have led multiple economists to suggest that the Federal Reserve should consider cutting interest rates soon. On Monday, Goldman Sachs chief economist Jan Hatzius wrote that with inflation slowing, the Fed should consider cutting rates as early as July due to the recent labor market softening.
In June, the unemployment rate rose for the third consecutive month to 4.1%, up from 4% in May.
“While layoffs remain subdued, the unemployment rate is gradually trending higher because hiring is not strong enough to absorb all new native- and foreign-born labor force entrants,” Hatzius wrote. “The updraft in the unemployment rate has been welcomed by Fed officials so far, but we agree with Chair Powell’s assessment that the labor market is now fully back in balance. We may be approaching an inflection point at which further softening in labor demand results in a bigger and much less welcome increase in unemployment.”
As of Thursday morning, markets were pricing in a roughly 98% chance that the Fed will cut interest rates by the end of its September meeting. However, the likelihood of a rate cut during the Fed’s next meeting on July 30-31 was just under 5%, according to the CME FedWatch Tool.
Read more: How does the labor market affect inflation?
