The number of Americans filing new claims for unemployment benefits exceeded expectations last week, indicating that labor market conditions continued to show signs of easing. This development could potentially support the Federal Reserve’s efforts to combat inflation.
For the week ending November 11, initial claims for state unemployment benefits increased by 13,000 to a seasonally adjusted total of 231,000, as reported by the Labor Department on Thursday. Economists surveyed by Reuters had anticipated 220,000 claims for the latest week.
The labor market is experiencing a slowdown due to higher interest rates, which are dampening demand. Job growth decelerated in October, and the unemployment rate rose to 3.9%, the highest level since January 2022. Despite this, with 1.5 job openings for every unemployed person in September, conditions in the labor market remain relatively tight.
Economists at Goldman Sachs expressed the belief that last month’s uptick in the jobless rate should not be interpreted as a negative signal. They pointed out that the increase in the unemployment rate since April has been primarily due to a growth in the size of the labor force, rather than a decline in employment.
The combination of easing labor market conditions, decreasing inflation, and a cooling in consumer spending has led to growing expectations that the Federal Reserve has completed its monetary policy tightening cycle. Financial markets are even anticipating a potential interest rate cut in May, according to CME Group’s FedWatch tool. Since March 2022, the Fed has raised its policy rate by 525 basis points, resulting in the current range of 5.25%-5.50%.
The number of individuals receiving benefits after their initial week of aid, which serves as a proxy for hiring, increased by 32,000 to reach 1.865 million during the week ending November 4, as indicated in the claims report. These continuing claims have been on the rise since September.
While many economists attribute this increase to challenges in adjusting the data for seasonal fluctuations rather than significant shifts in the labor market, they anticipate that these issues will be addressed when the government revises the data next spring.
Lou Crandall, chief economist at Wrightson ICAP in New York, emphasized that this should not be viewed as a reason to expect a substantially higher unemployment rate in the November monthly jobs report. However, some analysts acknowledged that the sustained increase may indicate that more unemployed individuals are experiencing longer periods of joblessness.