The US labor market is loosening as weekly jobless claims hit a three-month high

  • Weekly jobless claims rise by 13,000 to 231,000
  • Continued claims increase by 32,000 to 1.865 million
  • Import prices fell 0.8% in October
  • Manufacturing output plummets 0.7%

WASHINGTON, Nov 16 (Reuters) – The number of Americans filing new claims for jobless benefits rose to a three-month high last week, suggesting the labor market was gradually cooling in another boost to the Federal Reserve’s fight against inflation .

The Labor Department’s weekly jobless claims report on Thursday, the most timely data on the health of the economy, also showed jobless gains growing to levels last seen two years ago. The labor market is slowing as higher interest rates dampen demand, consistent with slowing economic activity.

That added to data this week showing easing inflation and a moderation in consumer spending to bolster expectations that the Fed’s monetary tightening cycle has ended.

Still, the increase in both initial and sustained injuries is unlikely to signal a significant shift in labor market conditions. Economists noted difficulties in adjusting the data for seasonality after an unprecedented surge in jobless claims early in the COVID-19 pandemic.

“Further modest progress has been made toward lowering inflation and rebalancing the labor market,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. “We have reservations about the seasonal factors which may have been distorted by claims during the Covid period.”

Initial claims for state jobless benefits rose 13,000 to a seasonally adjusted 231,000 for the week ended Nov. 11, the highest since August. Economists polled by Reuters had predicted 220,000 claims for the past week. Claims are in the middle of their 194,000-265,000 range for this year.

Unadjusted claims rose 1,713 to 215,874 last week. There was a jump in applications in Massachusetts and New York, which more than offset notable declines in Oregon and Georgia.

“Overall, the data suggest that the labor market may be cooling, but conditions are not particularly bad,” said Daniel Silver, an economist at JPMorgan in New York. “The initial claims data can be volatile, especially around holidays like Veterans Day, so we never want to overreact to just one week of data.”

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Job growth slowed in October and the unemployment rate rose to a nearly two-year high of 3.9%. Conditions are still quite tight with 1.5 job openings per available in September. Economists at Goldman Sachs said they did not think October’s rise in the unemployment rate was a bad omen, noting that the rise in unemployment since April has come entirely from an expansion in the size of the labor force rather than a decline in employment. .

Stocks on Wall Street traded lower after Walmart ( WMT.N ) said Americans continued to be cautious about their spending due to higher prices and borrowing costs.

The dollar fell against a basket of currencies. U.S. Treasury bond prices rose and yields neared two-month lows.

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The latest spate of inflation-friendly data has left financial markets anticipating a rate cut next May, according to CME Group’s FedWatch tool. Since March 2022, the Fed has raised its key interest rate by 525 basis points to the current range of 5.25%-5.50%.

The number of people receiving benefits after a first week of aid, a proxy for employment, rose 32,000 to 1.865 million in the week ended Nov. 4, the highest level since November 2021, the claims report showed. The so-called continuing injuries have increased since mid-September.

Most economists have attributed the increase to the difficulty of adjusting the data for seasonality rather than weakness in the labor market. They expect this to be rectified when the government revises the data next spring.

While some agreed that seasonality was a problem, they also saw the sustained increase as a sign that more unemployed people were experiencing longer periods of unemployment.

“There is little prospect of a resumption of labor demand in the near term as interest rates are set to remain ‘higher for longer,'” said Kurt Rankin, senior economist at PNC Financial in Pittsburgh, Pennsylvania. “Thus, declining consumer demand going into 2024 should put upward pressure on jobless claims going forward as those enduring layoffs and new job seekers find opportunities less available.”

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The stream of encouraging inflation readings was extended by a separate report from the Labor Department’s Bureau of Labor Statistics on Thursday that showed import prices fell 0.8% in October, the most in seven months amid a broad decline in commodity costs. Import prices rose 0.4% in September.

Economists had forecast import prices, which exclude tariffs, falling 0.3%. In the 12 months to October, import prices fell 2.0% after falling 1.5% in September. Annual import prices have now fallen for nine consecutive months.

Inflation gauges

But production was crushed by union strikes by the United Auto Workers (UAW) against Detroit’s “Big Three” automakers, which squeezed motor vehicle production in October

Manufacturing output fell 0.7% last month after rising 0.2% in September, the Fed said in a third report. Economists had predicted a fall of 0.3 per cent. Production at factories fell 1.7% year-on-year in October.

Production of motor vehicles and parts fell 10.0% after a 0.5% drop in September. The UAW has ended its industrial action at factories owned by General Motors ( GM.N ), Ford ( FN ) and Chrysler parent Stellantis ( STLAM.MI ). Excluding motor vehicles and parts, manufacturing output rose 0.1%.

Philly Fed

Manufacturing, which accounts for 11.1% of the economy, remains hampered by the higher rates. A fourth report from the Philadelphia Fed showed that factory activity in the Mid-Atlantic region fell further in November, although the pace of decline slowed from October.

Factories in the region were also downbeat about business prospects over the next six months.

“Overall, we still see signs that manufacturing activity, particularly in the durable goods sector, has bottomed out and is starting to pick up again, although that is unlikely to last in an environment of generally weakening demand,” said Veronica Clark, an economist at Citigroup in New York.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

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