Jobless claims tick higher ahead of critical May jobs report

Claims for jobless benefits rose to a four-week high last week, ahead of May’s employment report, which will be key data for the Federal Reserve as it considers whether to start cutting interest rates this year.

The Labor Department said Thursday that new initial claims for unemployment benefits rose by 8,000 to 229,000 for the week ending June 1. Claims for the previous week rose by 2,000 and were revised up to 221,000.

The four-week moving average, which has seen little fluctuation, was down 750 cases compared to the previous figure, at 222,250.

The unemployment rate has remained below 4% since January 2022, demonstrating surprising strength in the job market even as the Federal Reserve has tightened monetary policy during that time.

However, signs of labor market stress are beginning to emerge, with the unemployment rate rising from 3.4% in April 2023 to 3.9% in April 2024.

The economy added 175,000 jobs for the month, down from 315,000 in March and 236,000 in February.

The Labor Department reported this week that job openings fell to 8.1 million in April, the lowest level since February 2021. There were 1.25 vacant positions for every job seeker, a ratio that still favors workers but is less favorable than in recent years, when it was closer to 2-to-1.

The Federal Reserve raised interest rates 11 times in a row starting in March 2022, ultimately bringing the effective rate to 5.33%, where it has remained for nearly a year. The central bank also reduced the money supply during that period, but it has been increasing again since August.

Many economists had predicted that the Fed’s rapid tightening of monetary policy would cause a recession, but those fears proved unfounded as trillions of dollars of fiscal and monetary stimulus permeated the economy and helped keep workers employed.

Investors are banking on a rate cut this year, even as inflation has hovered around 3% since last June. A further decline in payrolls in Friday’s jobs report could stabilise those hopes, but it may not come soon enough to have an impact on the nation’s economy ahead of the November election.

According to financial data firm CME’s Fed Watch forecasting algorithm, there is a 100% chance that the Fed will keep interest rates at their current level at its next meeting in June.

As of Thursday morning, the algorithm projected a 58% chance of a quarter-point rate cut in September, with a 31.7% chance of keeping rates at the cut in the same month.