Jobless Claims Hit Alarming High: Is the US Labor Market Softening?

Last updated: June 28, 2024
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Continuing unemployment claims in the US surged to their highest level since November 2021, signaling potential trouble in the labor market.

The Department of Labor reported nearly 1.84 million claims for the week ending June 22, up from 1.82 million the previous week.

The 4-week moving average of jobless claims also rose by 3,000 to 236,000, the highest since September 2023.

LPL Financial’s chief economist, Jeffrey Roach, described the data as a “warning sign” of a possible labor market softening.

The Federal Reserve now faces the critical task of discerning whether this trend reflects a normalizing labor market or a deeper economic issue triggered by higher interest rates.

Nancy Vanden Houten of Oxford Economics urged caution, noting the volatility in weekly claims data. However, she acknowledged that a sustained rise in claims would point to labor market weakness and support the case for rate cuts by September.

Fed Chair Jerome Powell, in his June 12 press conference, maintained that the labor market is gradually balancing, showing no alarming signs yet. “We see gradual cooling — gradual moving toward better balance. We’re monitoring it carefully for signs of…something more than that, but we really don’t see that,” Powell stated.

Nonetheless, some economists are less optimistic. Ian Shepherdson of Pantheon Macroeconomics predicted a significant slowdown in private payrolls growth, which could boost the unemployment rate and challenge the Fed’s stance.

Renaissance Macro’s Neil Dutta echoed concerns about weakening labor demand and suggested the Fed might need to cut rates soon.

“I just don’t think the Fed wants to really push the weakening in labor demand that much more,” Dutta told Yahoo Finance.

Market strategists now view the labor market as the key economic indicator to watch, surpassing inflation in importance. Citi’s Stuart Kaiser advised maintaining a long US equity portfolio unless payrolls show a significant slowdown.

The labor market’s future remains uncertain, with the potential for higher unemployment looming. The coming weeks will reveal whether this trend is a mere hiccup or a sign of deeper issues in the US economy.

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