While new claims for unemployment benefits rose last week, the number of unemployed people rose further toward the end of June to a 2-1/2-year high, reflecting a gradual cooling in the labor market.
Weakening labor market momentum and fading inflationary pressures are likely to lead the Federal Reserve to begin cutting interest rates later this year, with financial markets expecting an easing cycle to begin in September.
Fed Chairman Jerome Powell said Tuesday the economy is back on a “disinflationary path” but stressed that policymakers need more data before cutting rates.
“The labor market remains historically strong, but not as strong as it was in 2022 or early 2023,” said Gus Faucher, chief economist at PNC Financial.
The Labor Department said Wednesday that initial claims for state unemployment insurance for the week ending June 29 rose by a seasonally adjusted 4,000 to 238,000.
The report was released a day early due to Thursday’s Independence Day holiday.
Economists polled by Reuters had expected jobless claims to reach 235,000 in the latest week. Unadjusted claims rose by 13,049 to 238,149.
New York saw an increase of 4,509 applications, likely related to school holidays.
Notable increases were also reported in California, New Jersey, Georgia, Illinois, Iowa, Kentucky and Michigan.
These more than offset declines in Connecticut and Maryland.
Jobless claims rose to the higher end of this year’s range of 194,000 to 243,000, partly because rising interest rates have dented demand and led to more layoffs, as well as because of difficulties adjusting the data for seasonal fluctuations during the holidays.
The uncertainty could continue beyond the Fourth of July holiday, as automakers typically shut down assembly plants during the summer to retool, but it’s unclear when that will happen.
The labor market has been steadily cooling, with the government reporting Tuesday that there were 1.22 job openings per unemployed person in May.
The job vacancy rate is close to the 2019 average of 1.19.
Meanwhile, the ADP employment report released Wednesday showed that private sector payrolls increased by 150,000 in June, following an increase of 157,000 in May.
Economists polled by Reuters had expected private sector employment to rise by 160,000.
The U.S. central bank has been keeping its benchmark overnight interest rate at the current range of 5.25% to 5.50% since July last year. The Fed has raised interest rates by 525 basis points from 2022 onward in an effort to curb inflation.
According to the unemployment claims report, the number of people receiving benefits in the first week of support, a measure of employment, increased by 26,000 in the week ended June 22 to a seasonally adjusted 1.858 million, the highest level since late November 2021.
The so-called continuing claims data increased due to a Minnesota policy change that took effect last year that allowed non-teaching education employees to apply for unemployment benefits over the summer.
The bump should disappear when schools reopen for the new semester in the fall.
U.S.-based employers announced 48,786 job cuts in June, a 23.6% decrease from May, according to a third report released Wednesday by global outplacement firm Challenger, Gray & Christmas.
However, planned job cuts increased by 19.8% compared to June last year.
The government is due to report on Friday that nonfarm payrolls rose by 190,000 in June, following a rise of 272,000 in May, according to a Reuters survey of economists.
The unemployment rate is expected to remain unchanged at 4.0%.
