Rise in US jobless claims adds to signs of labour market softness

The number of Americans filing new applications for jobless benefits rose by the most in about three months last week, and the number of people collecting unemployment relief in the prior week climbed to the highest level in nearly four years, signalling that recent labour market softness continued into August.

The data may also add to the argument for the US Federal Reserve to lower interest rates at its next meeting in about four weeks.

Initial claims for state unemployment benefits rose by 11,000 – the largest increase since late May – to a seasonally adjusted 235,000 for the week ended Aug 16, the Labour Department said on Aug 21.

Economists polled by Reuters had forecast 225,000 claims for the latest week.

The data covered the survey week for the August non-farm payrolls report from the Bureau of Labour Statistics (BLS), and while it does not yet suggest large-scale layoffs are afoot, it nonetheless points to another month of sub-par jobs growth.

“Directionally, the data shows some deterioration in labour market conditions since last month, but the magnitude is limited,” said Jefferies chief US economist Thomas Simons.

“Based on this report alone, we expect (August) NFP (non-farm payrolls) will print in the 60,000 to 80,000 range.”

The labour market has split into low firings and tepid hiring as businesses navigate US President Donald Trump’s protectionist trade policy, which has raised the nation’s average import duty to its highest level in a century.

Jobs growth has averaged 35,000 jobs a month over the last three months, the government reported in early August.

Domestic demand grew in the second quarter at its slowest pace since the fourth quarter of 2022.

“The latest rise in claims, if sustained, would indicate some pickup in layoffs, albeit from very low levels,” Oxford Economics lead US economist Nancy Vanden Houten wrote in a note.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 30,000 to a seasonally adjusted 1.972 million, the highest level since November 2021, during the week ending Aug 9, the claims report showed.

The elevated so-called continuing claims align with consumers’ rising perceptions that jobs are hard to find.

Economists said the continuing claims trend was consistent with the unemployment rate rising to 4.3 per cent in August from 4.2 per cent in July.

BLS will release the August payrolls report on Sept 5, and it will be watched closely not just for its estimates of jobs growth in August, but also for whether the accompanying revisions to the two prior months are anywhere near as large as they were in the report for July.

That report featured revisions of a historic magnitude that erased more than a quarter of a million jobs previously thought to have been created in May and June.

Mr Trump fired the BLS commissioner as a result.

Mixed data

Other data released on Aug 21 sent somewhat conflicting signals about the economy’s health.

A monthly survey of purchasing managers at both manufacturers and services firms suggested business activity and hiring have picked up pace appreciably in August.

S&P Global’s flash US Composite Purchasing Managers’ Index (PMI) increased to 55.4 in August, the highest level since December, from 55.1 in July. A reading above 50 indicates expansion in the private sector.

“A strong flash PMI reading for August adds to signs that US businesses have enjoyed a strong third quarter so far,” S&P Global Market Intelligence chief business economist Chris Williamson said in a statement.

“The data is consistent with the economy expanding at a 2.5 per cent annualised rate, up from the average 1.3 per cent expansion seen over the first two quarters of the year.”

The improvement came largely from the manufacturing sector, where the flash PMI surged to 53.3 – the highest level since May 2022 – from 49.8 in July, defying economists’ expectations for a second month of contraction.

Manufacturing received a bump from new orders activity, which was the highest since February 2024.

The services sector, meanwhile, eased back to 55.4 from 55.7 in July. Economists polled by Reuters had forecast the services PMI would slip to 54.2.

The survey’s measure of employment rose to the highest level since January, a finding apparently at odds with the jobless claims data.

Its inflation gauge also rose again, reflecting the effects of Mr Trump’s tariffs – both in higher input costs and higher prices being passed on to consumers by businesses.

Many economists expect the tariffs to slow activity and keep prices elevated, a dynamic that could make it hard for the Fed to deliver the series of rate cuts through the end of 2025 that investors seem to anticipate.

The prevailing view is that the Fed will lower its benchmark interest rate by a quarter of a percentage point at its Sept 16 to 17 meeting to provide a cushion for the job market, but with inflation not currently on a trajectory back towards the central bank’s 2 per cent target, officials may be hesitant to signal more cuts are coming.

Expectations for a Fed rate reduction recently have helped lower mortgage rates somewhat, and that dynamic appears to have helped sales of previously owned homes to rebound a bit in July from a nine-month low in June.

Home sales rose 2 per cent in July to a seasonally adjusted annual rate of 4.01 million units from 3.93 million in June, the National Association of Realtors said.

Sales edged up 0.8 per cent on a year-on-year basis.

Dr Lawrence Yun, the National Association of Realtors’ chief economist, saw the data as suggesting that some relief in the factors that have weighed on home sales – high borrowing costs and prices and limited inventory – may be in the offing.

“The ever-so-slight improvement in housing affordability is inching up home sales,” Dr Yun said in a statement. “Wage growth is now comfortably outpacing home price growth, and buyers have more choices.” REUTERS