Jobless claims jump to 225,000, topping forecasts as hiring stalls

U.S. jobless claims rose more than expected to a four-month high of 225,000, reinforcing a labor market where hiring has stalled but layoffs remain historically low.

U.S. jobless claims rose more than expected to 225,000 last week, the highest in four months, as the labor market remains stuck in a low-hire, low-fire pattern that has kept the unemployment rate at 4.3%.

"Most districts described a low-hire, low-fire environment," the Federal Reserve's Beige Book report said Wednesday, noting that hiring remained selective and focused on critical roles or attrition replacement.

Initial claims for state unemployment benefits increased by 13,000 to a seasonally adjusted 225,000 for the week ended May 30, the Labor Department reported Thursday. Economists polled by Reuters had forecast 213,000. The four-week moving average, which smooths weekly volatility, rose 6,500 to 214,750. The total number of Americans collecting unemployment benefits after an initial week of aid, a proxy for hiring, fell 8,000 to 1.78 million for the week ended May 23.

The data comes as the U.S.-Israel war with Iran, now in its fourth month, has disrupted commodity supplies and pushed oil prices up about 50% since late February, with Brent crude trading at $97.37 a barrel. Consumer inflation rose 3.8% in April, the biggest jump in three years, keeping the Federal Reserve on hold. Most analysts expect the economy added just 85,000 jobs in May, down from 115,000 in April, with the May jobs report due Friday.

Claims Trend Points to Cooling Labor Market

Despite the increase in claims, layoffs remain historically low, with weekly filings confined to a 190,000-to-230,000 range this year. U.S.-based employers announced 97,006 job cuts in May, about 39% of them in the technology sector, according to a separate report from Challenger, Gray and Christmas. That was up 16% from April but only 3% higher than the same period last year, suggesting the pace of announced reductions is not accelerating sharply.

The labor market's resilience is being tested by multiple headwinds. The Strait of Hormuz, through which one-fifth of the world's oil travels, remains closed since the war began in late February. The average price for a gallon of gas in the U.S. has risen to $4.24 from less than $3 before the conflict, squeezing consumer spending power. Wholesale prices shot up 6% from a year ago, the highest in more than three years, suggesting inflation pressures remain broad and may not yet fully reflect rising energy costs.

Private sector hiring offered a mixed signal. The ADP National Employment Report showed private payrolls rose by 122,000 in May, above the 117,000 consensus estimate and accelerating from a revised 105,000 in April. The data, released Wednesday, suggested some resilience in hiring despite the broader slowdown, though ADP figures have historically diverged from the government's official payroll count.

Financial markets reflected the uncertainty. The S&P 500 fell 0.5% on Wednesday, while the yield on the 10-year U.S. Treasury rose to 4.49%. Gold traded at $4,443 an ounce, down from recent highs, as investors weighed the competing forces of geopolitical risk and higher interest rates. The VIX, Wall Street's fear gauge, remained elevated as traders priced in continued volatility from the Middle East conflict. European equities also declined, with the FTSE 100 falling 0.4% and the DAX 40 dropping 1.3%.

The Federal Reserve has left its benchmark rate unchanged, citing economic uncertainty from the Middle East and still-elevated inflation. Some Fed policymakers have said they are willing to consider a rate hike this year, a stance that contrasts with market expectations for eventual cuts. Lower interest rates could boost hiring, but the central bank's focus on inflation containment has limited its room to act.

The May nonfarm payrolls report, due Friday, will provide the next major test of labor market strength. Economists surveyed by Reuters expect payrolls to rise by 85,000, which would mark a slowdown from April's 115,000 gain and continue a trend of decelerating job growth that began about two years ago. The last time monthly payroll gains averaged below 100,000 for a sustained period was during the 2020 pandemic recession, a reminder of how much the labor market has cooled from the post-pandemic hiring boom.

This article is for informational purposes only and does not constitute investment advice.