Fewer Americans applied for jobless benefits last week following a previous spike that many analysts took as a sign that higher interest rates were finally cooling the labor market.
It turns out the recent jump in jobless benefit applications was largely due to fraudulent applications in Massachusetts, where claims fell this week by more than 14,000 from the previous week, analysts said.
U.S. applications for jobless claims for the week ending May 13 fell by 22,000 to 242,000, from 264,000 the week before, the Labor Department reported Thursday. The weekly claims numbers are broadly as representative of the number of U.S. layoffs.
While news of the fraudulent Massachusetts numbers made the hand-wringing over last week’s jump in claims seem overblown, economists still expect a slow uptick in layoffs in the second half of 2023.
“We expect jobless claims will resume their upward trend as the economy weakens and enters a mild recession in the second half of the year, and as layoffs become more widespread,” wrote Nancy Vanden Houten, economist at Oxford Economics.
The four-week moving average of claims, which flattens some of the week-to-week fluctuations, ticked down by 1,000 to 244,250. Analysts have pointed to a sustained increase in the four-week averages as a sign that layoffs are accelerating, but are reluctant to predict that a spike in layoffs is imminent.
Overall, 1.8 million people were collecting unemployment benefits the week that ended May 6, about 8,000 fewer than the previous week.
Since the pandemic purge of millions of jobs three years ago, the U.S. economy has added jobs at a breakneck pace and Americans have enjoyed unusual job security. That’s despite interest rates that have been rising for more than a year and fears of a looming recession.
Early this month, the Fed raised its benchmark lending rate for the 10th time in a row in its bid to cool the economy and bring down four-decade high inflation. Though the labor market still favors workers, there have been some recent indications that the Fed’s policy actions are working.
In April, U.S. employers added a healthy 253,000 jobs and the unemployment rate dipped to 3.4%, matching a 54-year low. But the figures for February and March were revised lower by 149,000 jobs, potentially signaling that the Fed’s rate policy strategy is starting to cool the job market.
The government also recently reported that U.S. job openings fell in March to the lowest level in nearly two years.
The Fed is hoping to achieve a so-called soft landing — lowering growth just enough to bring inflation under control without causing a recession. Economists are skeptical, with many expecting the U.S. to enter a recession later this year.
Last month, the Commerce Department reported that U.S. economy slowed sharply from January through March, decelerating to just a 1.1% annual pace as higher interest rates hammered the housing market and businesses reduced inventories.
There have been an increasing number of high-profile layoffs recently, mostly in the technology sector, where companies added jobs at a furious pace during the pandemic. IBM, Microsoft, Salesforce, Twitter, Lyft, LinkedIn and DoorDash have all announced layoffs in recent months. Amazon and Facebook have each announced two sets of job cuts since November.
But it’s not just the tech sector that’s trimming staff. McDonald’s, Morgan Stanley and 3M also announced layoffs recently.