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US jobless claims rise to two-month high as labor market cools

A “Now Hiring” sign is posted outside of a restaurant looking to hire workers on May 5 in Miami.  (Joe Raedle/Getty Images North America/TNS)
By Jarrell Dillard Bloomberg News

Initial and recurring applications for U.S. unemployment benefits both rose to a two-month high, suggesting some slowdown in the labor market.

Initial claims increased by 9,000 to 224,000 in the week ending Jan. 27, according to Labor Department data released on Thursday. The median forecast in a Bloomberg survey of economists called for 212,000.

Continuing claims, a proxy for the number of people receiving unemployment benefits, rose to 1.9 million in the week ending Jan. 20.

The U.S. labor market has defied economists forecasts over the last year despite elevated interest rates, but there are signs of cooling. Fewer people are quitting their jobs than at the peak of the pandemic recovery and recent high-profile job-cuts announcements from companies including United States Parcel Service Inc. may be early signs that unemployment will pick up in coming months.

Weekly claims tend to be volatile. The four-week moving average, which helps smooth short-term fluctuations, increased to 207,750, marking the biggest increase since November.

The unadjusted data on initial claims, which doesn’t take into account seasonal influences, rose by 11,000 to about 261,000. California, New York and Oregon saw the largest gains.

U.S.-based employers announced plans to cut over 82,300 cuts in last month, more than double the December figure, but still below the 103,000 a year earlier, according to a report earlier Thursday from Challenger, Gray & Christmas. Meanwhile, hiring plans were the weakest on record for a January.

“The data continue to show that layoffs are not mounting,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note. “For now, an adjustment in labor market conditions is coming from a slowing in hiring rather than a surge in firings, which is welcome news.”

The low level of jobless claims data may not be a reliable indicator of what is happening in the labor market due to pandemic-related factors, according to Bloomberg Economics’ Anna Wong and Eliza Winger.

There’s a historically low share of unemployed Americans applying for benefits due to a lack of eligibility and the fact that the weekly payouts have not kept up with the pace of inflation, which may cause more people to seek part-time jobs rather than apply for benefits, Wong and Winger wrote in a recent note.

After Federal Reserve officials held interest rates steady on Wednesday, Chair Jerome Powell called the labor market “strong” in a news conference, adding “it’s getting back into balance, and that’s what we want to see.”

The release of the government’s monthly jobs report Friday will provide further insights on the labor market. Economists forecast U.S. employers added 185,000 jobs in January.