The number of new applications for unemployment benefits last week pushed to the highest level in nearly two years, the Labor Department reported Thursday, a sign that layoffs are rising and the economy may be weakening.
Jobless claims rose by 28,000 to 261,000. That is the highest number of claims since October 2021.
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Rising jobless claims, a proxy for layoffs, are a sign the labor market is starting to weaken in reaction to the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation.
The weekly jobless claims number has been closely watched over the past year, given the Fed has been hiking aggressively. The Fed opted to raise rates again during its last meeting, although it signaled that the rate revision may be the last of the series.
“We hope you enjoyed your Memorial Day holiday celebrations because soaring job layoffs say the recession is back on,” said Chris Rupkey, chief economist at FWDBONDS. “Another day, another reason to say forget about it when it comes to another interest rate hike at next week’s Fed meeting. Despite all the inflation risks, the Fed still has a dual mandate, and joblessness may be rising from the dead once again.”
While the labor market held up remarkably well last year and at the beginning of this year despite the barrage of rate hikes, there have been recent signs that the labor market is beginning to soften in response to the barrage of rate revisions. Thursday’s report is another big sign, although economists will be closely watching how jobless claims trend in the coming weeks and months.
Still, other indicators show the labor market is going strong.
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The economy crushed expectations in May and added another 339,000 jobs, a number that was well above expectations.
Additionally, the job numbers for the previous two months were increased by a combined 93,000. Monthly job growth has been averaging over 280,000 for the past three months.
