First-time jobless claims increased substantially last week, possibly indicating that the labor market is slowing after more than a year of interest rate increases.
The Labor Department said Thursday that initial claims for unemployment benefits totaled 261,000 for the week ending June 3, an increase of 28,000 from the previously revised amount.
The number exceeded the Dow Jones forecast of 235,000, and it was the highest weekly rate since Oct. 30, 2021.
The weekly increase increased the four-week moving average of claims by 7,500 to 237,250, the most since April 29. Continuing claims, which are released a week after the headline figure because they include people who have applied for numerous weeks, declined by 37,000 to 1.757 million.
The Labor Department did not specify what caused the rise. The unadjusted total was 219,391, representing a 5% rise over the previous week. Seasonal variables would have predicted a 6% reduction, according to the department.
Through May 20, 1.635 million persons were receiving unemployment benefits, up from 1.283 million the previous year, a 27.4% rise.
“One week’s worth of data is nowhere near enough evidence to conclude that claims are now decisively breaking to the upside, but other indicators have been signaling a jump in claims for some time now,” noted Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Higher claims are also consistent with the ongoing deterioration in credit availability and the lagged effect of the Fed’s tightening.”
The data comes less than a week before the next Federal Reserve meeting, at which officials will have to determine how to proceed with interest rates.
Markets anticipate that the Fed will refrain from raising interest rates at its two-day meeting, which finishes on Wednesday. According to CME Group statistics, the likelihood of no rise increased from roughly 65% prior to the publication to 73.6% following the claims data. A weaker labor market puts less pressure on the Fed to tighten monetary policy, as increased employment and earnings have contributed to rising inflation.
The Fed has raised its benchmark borrowing rate ten times since March 2022, to a target range of 5%-5.25%. During that time, the job market has remained resilient, with nonfarm payrolls expected to rise by about 1.6 million by 2023.
However, the May jobs data revealed some chinks in the armor, with the unemployment rate jumping by 0.3 percentage points to 3.7%, while the household survey revealed a 310,000 drop in that reporting being employed.
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Inflation has declined as the Fed has raised interest rates, but it remains significantly above the Fed’s 2% objective.
The Fed will receive its final look at inflation statistics before the meeting when the Bureau of Labor Statistics issues the May consumer price index report on Tuesday. According to FactSet, the headline CPI is forecast to climb by 0.1% on a monthly basis, while the core excluding food and energy is likely to grow by 0.4%.