US Weekly Jobless Claims Rise Amid Seasonal Volatility

The number of Americans filing new applications for unemployment benefits increased more than expected last week, due to typical seasonal volatility from temporary factory closures. Despite the rise, there has been no significant shift in the labor market.

Key Points:

• Jobless Claims Data:

  • Initial claims for state unemployment benefits rose by 20,000 to a seasonally adjusted 243,000 for the week ended July 13.
  • Economists had forecast 230,000 claims.
  • Unemployment rolls swelled to the highest level in more than 2-1/2 years in early July.

• Labor Market Trends:

  • The rise in claims is consistent with a cooling labor market, characterized by slower hiring rather than increased layoffs.
  • The unemployment rate increased to a 2-1/2-year high of 4.1% in June.
  • The Federal Reserve's "Beige Book" reported a slight increase in employment from late May through early July but noted a decline in manufacturing employment.

• Seasonal Volatility:

  • The data is noisy in July due to temporary factory closures, such as auto makers shutting down plants to retool for new models.
  • Variations in shutdown schedules can disrupt the seasonal adjustment model used by the government.

• Impact of Hurricane Beryl:

  • Unadjusted claims jumped 36,824 to 279,032 last week, with significant increases in states like Texas, likely due to Hurricane Beryl, and California.
  • Other states, including Georgia, Missouri, New York, Pennsylvania, and South Carolina, also saw notable increases.

• Economic Outlook:

  • A loosening labor market and ebbing inflation position the Federal Reserve to potentially cut interest rates in September, with further cuts anticipated in November and December.
  • The Fed has maintained its benchmark overnight interest rate in the 5.25%-5.50% range for the past year, after hiking rates by 525 basis points since 2022.

• Future Data:

  • Upcoming data on continuing claims, a proxy for hiring, will provide further insights into the labor market's state in July.
  • Continuing claims increased by 20,000 to a seasonally adjusted 1.867 million during the week ending July 6, the highest since November 2021.

"We learned from the recent Beige Book that businesses are not filling open positions as aggressively as they were in previous months," said Jeffrey Roach, chief economist at LPL Financial. "We should expect more cautionary rhetoric from Fed policymakers about the labor market."