The US labor market is declining as weekly unemployment claims reach their highest level in three months

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits rose to the highest level in three months last week, indicating that the labor market is gradually slowing in another boost to the Federal Reserve’s efforts to combat inflation.

The Labor Department’s weekly jobless claims report on Thursday, the latest data on the health of the economy, also showed unemployment rolls expanding to levels last seen two years ago. The labor market is slowing as higher interest rates suppress demand, consistent with a slowdown in economic activity.

He added to data this week showing declining inflation and moderating consumer spending in bolstering expectations that the Federal Reserve’s monetary policy tightening cycle has been completed.

However, the rise in both initial and continuing claims does not likely indicate a fundamental shift in labor market conditions. Economists pointed to difficulties in adjusting data for seasonal fluctuations after an unprecedented increase in unemployment claims early in the Covid-19 pandemic.

“Another modest progress has been made towards lowering inflation and rebalancing the labor market,” said Conrad Diquadros, chief economic adviser at Brain Capital in New York. “We have reservations about seasonal factors, which may have distorted claims during the Covid period.”

Initial claims for state unemployment benefits rose by 13,000 to a seasonally adjusted level of 231,000 for the week ending November 11, the highest level since August. Economists polled by Reuters had expected 220,000 claims in the last week. Claims are in the middle of their range of 194,000 to 265,000 for the year.

Unadjusted claims rose by 1,713 to 215,874 last week. There was a jump in filings in Massachusetts and New York, which offset notable declines in Oregon and Georgia.

“The data generally suggests that the labor market may be calming down, but conditions are not particularly bad,” said Daniel Silver, an economist at JP Morgan in New York. “Initial claims data can be volatile, especially on holidays like Veterans Day, so we never want to overreact to just one week of data.”

Job growth slowed in October and the unemployment rate rose to its highest level in almost two years at 3.9%. Conditions remain fairly tough, with 1.5 job openings per unemployed person in September. Economists at Goldman Sachs said they did not believe the increase in the unemployment rate in October was a bad omen, noting that the rise in the unemployment rate since April came entirely from the expansion in the size of the labor force and not from a decline in employment.

Stock trading fell on Wall Street after Walmart said Americans continue to be cautious about their spending due to rising prices and borrowing costs.

The dollar fell against a basket of currencies. US Treasury bond prices rose, with yields approaching two-month lows.

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The latest batch of inflation-friendly data has financial markets anticipating a rate cut next May, according to CME Group’s FedWatch tool. Since March 2022, the Fed has raised interest rates by 525 basis points to the current range of 5.25% to 5.50%.

The claims report showed the number of people receiving benefits after an initial week of assistance, a proxy for employment, rose by 32,000 to 1.865 million during the week ending Nov. 4, the highest level since November 2021. So-called continuing claims have been increasing since mid-September.

Most economists attributed the rise to difficulties in adjusting data to seasonal fluctuations and not to the weakness of the labor market. They expect this matter to be settled when the government reviews the data next spring.

While some agreed that seasonal adjustment was a problem, they also viewed the continued increase as a sign that more unemployed people are experiencing longer periods of unemployment.

“There is little prospect of a reactivation of labor demand on the near horizon as interest rates are set to remain high for longer,” said Curt Rankin, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “So fading consumer demand heading into 2024 should put upward pressure on future unemployment claims as those experiencing layoffs and job seekers find opportunities less accessible.”

The encouraging inflation readings were broadened by a separate report from the Labor Department’s Bureau of Labor Statistics on Thursday that showed import prices fell 0.8% in October, the largest decline in seven months amid a broad decline in commodity costs. Import prices rose 0.4% in September.

Economists had expected import prices, which do not include customs duties, to decline by 0.3%. In the 12 months to October, import prices fell 2.0% after falling 1.5% in September. Annual import prices have now fallen for nine consecutive months.

But manufacturing has been hurt by United Auto Workers (UAW) strikes against Detroit’s “Big Three” automakers, which depressed auto production in October.

The Fed said in its third report that manufacturing output fell 0.7% last month after rising 0.2% in September. Economists had expected factory production to decline by 0.3%. Factory production fell by 1.7% year-on-year in October.

Production of automobiles and spare parts fell by 10.0% after falling by 0.5% in September. The UAW has ended its industrial work at plants owned by General Motors (GM.N), Ford (FN) and Chrysler’s parent company Stellantis (STLAM.MI). Excluding cars and spare parts, manufacturing production increased by 0.1%.

The manufacturing sector, which represents 11.1% of the economy, continues to be hampered by high rates. A fourth report from the Federal Reserve Bank of Philadelphia showed that factory activity in the Mid-Atlantic region contracted further in November, although the pace of decline slowed compared to October.

Factories in the region were also pessimistic about business prospects over the next six months.

“Overall, we continue to see signs that manufacturing activity, particularly in the durable goods sector, has bottomed out and is starting to rise again, although this is unlikely to continue into the future,” said Veronica Clark, an economist at Citigroup. “An environment of broadly weak demand.” New York.

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