The number of new unemployment benefit claims by Americans saw a slight increase last week, which was lower than expected, as the labor market gradually slows down due to declining demand.

According to the Labor Department’s report on Thursday, initial claims for state unemployment benefits rose by 1,000 to a seasonally adjusted 220,000 for the week ending December 2. Economists surveyed by Reuters had anticipated 222,000 claims for that week.

It’s important to note that claims data tend to be volatile during this time of year due to holidays, making it challenging to gauge the labor market’s true condition accurately.

Nonetheless, the labor market is indeed slowing down. The government reported this week that in October, there were 1.34 job openings for every unemployed person, the lowest figure since August 2021. The demand for labor is cooling in line with the overall economy, which is being affected by higher interest rates.

Another report from the global outplacement firm Challenger, Gray & Christmas, revealed that U.S.-based employers announced 45,510 job cuts in November, marking a 24% increase from October. However, these planned layoffs dropped by 41% compared to the same period the previous year.

With loosening labor market conditions and decreasing inflation, financial markets are starting to believe that the Federal Reserve has likely finished its cycle of interest rate hikes. In fact, financial markets are now anticipating a rate cut as early as the first quarter, as indicated by CME Group’s FedWatch Tool.

The U.S. central bank is expected to keep rates unchanged in its upcoming meeting next Wednesday. Since March 2022, the Fed has increased its policy rate by 525 basis points, bringing it to the current range of 5.25% to 5.50%.

The number of individuals receiving benefits after the first week of assistance, which serves as a proxy for hiring, decreased by 64,000 to 1.861 million during the week ending November 25, according to the claims report.

These continuing claims have been on the rise since mid-September, largely attributed to challenges in adjusting the data for seasonal fluctuations following a significant surge in benefit claims during the early stages of the COVID-19 pandemic.

Economists at Goldman Sachs estimate that seasonal distortions have contributed to at least 269,000 of the continuing claims increase since early September, and they anticipate this figure to rise by an additional 125,000 by March.

Lou Crandall, chief economist at Wrightson ICAP in New York, commented, “The jobs market has softened a little more than recent initial claims readings might suggest, but the 15% surge in continuing claims since Labor Day vastly overstates the deterioration. The sustained increase in the reported number of beneficiaries reflects seasonal adjustment distortions that will be smoothed out in future revisions.”

It’s worth noting that the claims data will not impact the November employment report set to be released on Friday, as they fall outside the survey period. According to a Reuters survey of economists, nonfarm payrolls are estimated to have increased by 180,000 jobs in November, boosted by the return of approximately 25,300 striking United Auto Workers union members. In October, the economy created 150,000 jobs, and the unemployment rate is forecasted to remain unchanged at 3.9%.

Join the discussion: Connect with other investors on your favorite stocks or explore the top-talked-about stocks on our Breakout Boards.

This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.
Some portions of this content may have been generated or assisted by artificial intelligence (AI) tools and been reviewed for accuracy and quality by our editorial team.