New applications for U.S. unemployment benefits rose more than expected last week, showing a resilient but strained labor market as the Federal Reserve navigates persistent inflation and the economic fallout from the war in the Middle East.
"The war has increased the downside risks to the labor market and we think it's too soon to assume that the ceasefire announced earlier this week will last," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "But, so far, the claims data indicate that labor market conditions are still stable, with no evidence of an increase in layoffs."
Initial claims for state unemployment benefits increased by 16,000 to a seasonally adjusted 219,000 for the week ended April 4, the Labor Department said Thursday. Economists polled by Reuters had forecast 210,000 claims. In contrast, the number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased 38,000 to 1.794 million for the week ended March 28, the lowest level since May 2024.
The mixed data complicates the Federal Reserve's path forward. The central bank, which tracks the Personal Consumption Expenditures (PCE) price measures for its two percent inflation target, is facing price pressures that were elevated even before the conflict drove up energy costs. The Fed has held its benchmark overnight interest rate in the 3.50%-3.75% range, and minutes from its March meeting show a growing number of policymakers believe rate hikes may be needed to counter inflation.
The U.S. labor market has been characterized by economists as being in a "low-hire, low-fire" state. While the economy added a strong 178,000 jobs in March, nudging the unemployment rate down to 4.3 percent, revisions trimmed 69,000 jobs from December and January payrolls.
The market's underlying strain is visible in a series of recent job cuts from major corporations. Software maker Oracle cut thousands of workers, while The Walt Disney Co. is reportedly preparing to eliminate 1,000 positions. Other companies announcing layoffs include Morgan Stanley, Block, UPS, and Amazon.
This environment has kept the headline unemployment rate low but has extended the duration of unemployment for those out of work to 11.4 weeks, the longest in nearly four and a half years.
A fragile two-week ceasefire between the U.S., Israel, and Iran provided a brief respite for oil markets, with prices dropping from a high of $112 a barrel to $95. However, skepticism over the deal's durability quickly sent prices back toward $100, saddling businesses and consumers with higher energy costs.
This surge comes on top of already-firm inflation. The PCE price index, the Fed's preferred inflation gauge, rose 0.4 percent in February, with the core measure advancing 3.0 percent year-over-year. Economists expect the Consumer Price Index for March, due Friday, to show a significant increase.
"The numbers are getting worse," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "The Fed is running out of valid excuses for missing on its inflation target, and many Fed officials are expressing that their patience is exhausted."
This article is for informational purposes only and does not constitute investment advice.
