US weekly jobless claims soar to 1-1/2 year high, economists urge caution

WASHINGTON, June 8 (Reuters) – The number of Americans filing new claims for unemployment benefits rose to the highest level in more than 1-1/2 years last week, but layoffs are unlikely to increase as the data covered the Memorial Day holiday, which could have injected some volatility.

The largest increase in applications in nearly two years reported by the Labor Department on Thursday was driven by increases in Ohio, Minnesota and California. After widespread fraud in Massachusetts briefly boosted claims to a 1-1/2-year high in May before being revised away, economists cautioned against reading too much into the latest increase.

“The jump in claims could be a sign of an increase in layoffs, but given the volatility in claims from week to week, it’s too early to draw that conclusion,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.

“The narrow increase in claims by state is an additional factor that suggests we should wait for further confirmation before conclusive layoffs have picked up, especially given the recent fraud in Massachusetts.”

Initial claims for government unemployment benefits jumped by 28,000 to a seasonally adjusted 261,000 for the week ended June 3, the highest level since October 2021. Economists polled by Reuters had forecast 235,000 claims for the past week.

Unadjusted claims rose just 10,535 to 219,391 last week, with filings in Ohio up 6,345 and filings in California up 5,173. Claims increased by 2,746 in Minnesota. Applications in Ohio have increased in recent weeks, attributed by the state to layoffs in the manufacturing, auto and transportation and warehousing industries. Automakers typically close factories in the summer for remodeling.

“Some car factories take temporary breaks in the summer, although the dates change slightly each year, making it difficult for seasonal factors to be captured correctly,” said Gisela Hoxha, an economist at Citigroup in New York.

“This suggests that there may be some additional volatility in initial claims over the coming months.”

The four-week moving average of claims, considered a better measure of labor market trends as it strips out week-to-week volatility, rose 7,500 to 237,250.

Economists saw no impact on monetary policy from the claims data. The Federal Reserve is expected to keep interest rates unchanged next Wednesday for the first time since March 2022, when it began its fastest rate hike campaign since the 1980s. The US Federal Reserve has raised its key interest rate by 500 basis points since then.

Stocks on Wall Street traded higher. The dollar fell against a basket of currencies. Prices of US government bonds rose.

GRADUAL NEXOMITY

“Claims remain well below our estimate of 305,000 to be consistent with no monthly job growth, and it will take a more sustained increase in the level of claims to affect the Fed’s monetary policy,” said Matthew Martin, a U.S. economist at Oxford Economics in New York .

The government reported last week that the economy added 339,000 jobs in May. Although the unemployment rate rose to a seven-month high of 3.7% from 3.4% in April, it remains historically low.

Job growth is driven by the services sector, including the leisure and hospitality category, which is still on the rise after businesses have struggled to find workers for the past two years. Industries such as healthcare and education also experienced accelerated retirements during the COVID-19 pandemic.

For some economists, however, the increase in claims suggested that layoffs were spreading from the technology sector and interest-sensitive industries such as housing, finance and manufacturing, which made headlines last year and early this year, to other parts of the economy.

“However, with headline-grabbing layoffs, it usually takes some time before they are put into effect,” said Stuart Hoffman, senior financial adviser at PNC Financial in Pittsburgh, Pennsylvania. “This delay accounts for the recent increase in initial claims. This effect could also herald a further escalation in the months ahead, along with the ever-increasing net of job cuts spreading across industries.”

The labor market is gradually cooling down.

The Institute for Supply Management (ISM) reported on Monday that the services PMI fell in May, mainly attributed to weakness in employment. According to ISM, comments from service companies ranged from “we’re trying to do more with the same staff,” to being “on a hiring freeze until there’s a better understanding of where the economy is going.”

Overall, employers seem reluctant to let workers go after difficulties finding labor during the pandemic.

The number of people receiving benefits after a first week of assistance, a proxy for employment, fell 37,000 to 1.757 million in the week ended May 27, the lowest level since February, the claims report showed.

The low level of so-called continuing claims suggests that some laid-off workers are still finding easy work, with 1.8 job openings for every unemployed person in April.

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

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