The US Labor Department’s recent report is not boding very well for the US economy. It appears that jobless claims have spiked and expected to register their highest since October 2021. As of June 3, there have been 261,000 jobless claims in total, or an additional 28,000 from the week prior. This figure is higher than what Dow Jones predicted at 235,000. 

The rise of first-time unemployment claims potentially signals a weakening of the labor market following interest rate hikes that went on for more than one year. The climb also increased the moving average of jobless claims in four weeks since April 29 by 7,500. Meanwhile, continuing claims or claims filed by people for several weeks dropped to 1.757 million.

No explanation was made by the Labor Department on what caused the increase. If seasonal factors were accounted for, a 6% decrease would have been predicted. Instead, a 5% increase was observed from the previous week.

Statistics also indicate that 27.4% more people or 1.635 million people received unemployment benefits until May 20, compared to last year. Still, the data remains insufficient to draw conclusions, according to Ian Shepherdson of Pantheon Macroeconomics. Despite a spike in job claims, they are also partly reflective of the “ongoing deterioration of credit availability” and the tightening of the Fed.

Fed rate hike expected to be a no-go

The jobless claims report coincides with a Federal Reserve meeting scheduled next, where central bank honchos are set to decide what’s next with respect to interest rates.

Markets are optimistic the Fed will decide against a rate hike, with CME Group data estimating changes of no increase at 76.3% from a previous estimate of 65% before the report. 

While the labor market in the past has proved resilient, the recent jobs report indicates a slowing down. Unemployment rate has been rising steadily by 0.3 percentage point with over 310,000 people reporting being unemployed, according to a household survey.