The number of new applications for unemployment benefits rose by 20,000 to 243,000 last week, the highest number of claims in about 10 months, the Labor Department reported Thursday.
The increase could be a sign that the labor market is softening due to high interest rates by the Federal Reserve, which has been trying to weaken demand to drive down inflation .
Jobless claims are seen as a proxy for layoffs. If few people are claiming unemployment insurance, it suggests not many workers are getting laid off. So the uptick is notable, especially since claims have not been this high since September 2023.
“Net, the recession clouds have moved back in suddenly, literally, almost overnight, and the skies are darkening ominously with new job layoffs surging and the total number of jobless workers receiving unemployment benefits at a new 2024 high,” said Chris Rupkey, chief economist at FWDBONDS. “This is exactly what a recession looks like, and it will be a miracle if the economy misses one.”
The Fed has raised its interest rate target to 5.25% to 5.50%, the highest since the dot-com bubble at the turn of the century. The biggest question now is when the Fed will start cutting rates, with most investors expecting the first rate cut after years of tightening to come at the Fed’s September meeting.
Inflation, which peaked at about 9% in June 2022, has generally been falling, which is a good sign for the economy. Inflation fell to 3% for the year ending in June in the consumer price index, the Bureau of Labor Statistics reported last week, marking three months of disinflation.
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And despite the high interest rate environment, the overall labor market has remained above water.
The economy added 206,000 jobs in June, and the unemployment rate rose 0.1 percentage points to 4.1%, the Bureau of Labor Statistics recently reported. While the unemployment rate has been trending up a bit in recent months, 4.1% is still a historically low rate.
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