Last week, the number of weekly jobless claims rose more than expected, the latest sign of cooling in the labor market.
The latest data from the US Department of Labor shows that in the week ended July 13, the number of initial claims for unemployment benefits was 243,000, up from 222,000 the previous week and above economists' expectations of 229,000. This was unchanged from the weekly jobless claims in June and the highest level since August 2023.
At the same time, the number of people continuously claiming unemployment benefits reached the highest level since November 2021, with the number of people claiming unemployment benefits close to 1.87 million as of the week ended July 6, up from 1.85 million the previous week.
Thomas Simmons, a US economist at Jefferies Financial, said that part of the reason for the increase in weekly jobless claims may be due to Hurricane Berrell causing workers to be displaced. However, Simmons pointed out that the trend in jobless claims in recent weeks reflects more problems in the labor market.
Simmons wrote in a research report on Thursday: "Data over the past few weeks has been suggesting a gradual weakening of the labor market, despite the signs of weakness coming from an extremely strong market. It is now too early to determine whether this is another step towards a more balanced labor market or the early stages of a downward trend."
Several economists believe that the signs of weakness pointed out by Simmons support the Fed's reason for starting to cut interest rates soon. On Monday, Jan Hatzius, chief economist at Goldman Sachs, wrote in a research report that with inflation slowing and the recent loosening of the labor market, the Fed should consider interest rate hikes as early as July.
In June, the unemployment rate rose for the third consecutive month to 4.1%, up from 4% in May.
"The bottom is obvious," Hatzius wrote. "Although the number of layoffs is still relatively low, the unemployment rate is gradually rising because the recruitment number is not enough to absorb all new local and foreign labor. So far, Fed officials have welcomed the rise in unemployment, but we agree with Chairman Powell's assessment that the labor market has now fully recovered in balance."
"We may be approaching a turning point, where further weakening of labor demand will lead to a significant increase in unemployment, which is not welcome."
As of Thursday morning, the market expects a nearly 98% chance of the Fed cutting interest rates before the end of its September meeting. At the same time, according to the CME Group's FedWatch tool, investors believe that the probability of the Fed cutting interest rates at the next meeting on July 30-31 is slightly less than 5%.
