In the latest report from the Labor Department, the number of Americans filing new applications for unemployment benefits fell more than anticipated last week. However, due to the volatility caused by automobile manufacturers temporarily closing their plants for retooling during this time of the year, it becomes more challenging to accurately gauge the state of the labor market.
For the week ending July 6, initial claims for state unemployment benefits decreased by 17,000 to a seasonally adjusted 222,000, marking the lowest level since late May. This figure surpassed the expectations of economists polled by Reuters, who had predicted 236,000 claims for the week.
It is worth noting that the claims data encompassed the Independence Day holiday, which typically introduces volatility into the numbers. Additionally, the shutdown of assembly plants by auto makers during the week of July 4th to prepare for new models further contributes to the irregularity in the data.
However, it is important to acknowledge that the timing of these plant closures can vary among manufacturers. Consequently, this variation can disrupt the government’s model for smoothing out the data to account for seasonal fluctuations.
As interest rates from the Federal Reserve continue to rise in 2022 and 2023, there are growing indications that the labor market is losing momentum. This may introduce some distortions in the claims data.
In May, there were 1.22 job openings for every unemployed person, only slightly higher than the average of 1.19 in 2019. The unemployment rate increased to 4.1% in June, reaching its highest level in 2-1/2 years. Since June, claims have remained consistently high, ranging from 194,000 to 243,000.
Federal Chair Jerome Powell has expressed concerns about the labor market, stating that there has been a significant softening. Financial markets are interpreting this, along with decreasing inflation pressures, as a signal that the U.S. central bank may begin cutting rates in September.
Since July of last year, the Fed has maintained its benchmark overnight interest rate within the range of 5.25% to 5.50%. To combat inflation, it has raised its policy rate by 525 basis points since 2022.
According to the claims report, the number of individuals receiving benefits after the first week of aid, which is often used as an indicator of hiring activity, decreased by 4,000 to reach 1.852 million on a seasonally adjusted basis for the week ending June 29.
It is worth noting that the continuing claims data has been influenced by a policy change in Minnesota that took effect last year. This policy allows non-teaching educational staff to apply for unemployment benefits during the summer break. However, the overall high level of continuing claims is also in line with the increase in the unemployment rate.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)