February 2, 2023

US weekly jobless claims rose to 260,000 ahead of the non-farm payrolls report

US weekly jobless claims rose to 260,000 ahead of the non-farm payrolls report

A rental sign hangs on the window of a Chipotle restaurant in New York, April 29, 2022.

Shannon Stapleton | Reuters

Initial unemployment insurance claims totaled 260,000 last week, near the highest level since November amid a shift in the US labor market.

The Labor Department said Thursday that the total for the week ending July 30 was in line with Dow Jones estimates but a gain of 6000 from the downwardly revised level the previous week.

In other economic news, the US trade deficit in goods and services narrowed to $79.6 billion in June, down $5.3 billion and just below the estimate of $80 billion.

The jobless claims figure comes a day before the Bureau of Labor Statistics releases its much-anticipated non-farm payrolls report for July. This is expected to show that the US economy added 258,000 jobs in the month, compared to a preliminary estimate of 372,000 for June and the lowest total since December 2020.

“The job market remains in good shape as the summer quarter progresses, but the rise in initial claims since early April is a cool breeze blowing over the hot labor market this summer,” said Stuart Hoffman, chief economic advisor at PNC Financial Services.

Federal Reserve officials are watching the job market closely for clues about an economy showing the highest rate of inflation in more than 40 years.

Claims for unemployment benefits were near their lowest levels since the late 1960s but began to rise in June as inflationary pressures inflated and companies began cutting hiring. Even with strong hiring in 2021 and the first half of 2022, the total employment level is 755,000 less than it was in February 2020, the last month before the Covid pandemic.

The four-week moving average of jobless claims, which moderates weekly volatility, reflects the shift in the labor market. That number rose 6000 from the previous week to 254,750, up sharply from a recent low of 170,500 on April 2 and the highest level for the year.

Continuing claims, which came a week behind the headline figure, totaled 1.42 million, up 48,000 from the previous week and 83,000 from the start of July.

The trade deficit is beyond a record level

On the trade side, the reduced deficit reflects a shift to a more normal environment after the US deficit with its global trading partners hit a record high of $107.7 billion in March.

Exports increased by $4.3 billion, while imports declined by $1 billion. However, the goods deficit with China increased by $4.7 billion to just $37 billion. Imports of cars, parts and engines decreased by $2.7 billion while capital goods increased by nearly $1 billion.

Even with the deficit narrowing in June, it is still 33.4% higher than it was a year ago, as domestic supply failed to keep pace with strong demand. This pushed the inflation rate to its highest level since the early 1980s.

The Federal Reserve has instituted a series of four rate hikes this year totaling 2.25 percentage points, in part in an effort to curb some of that demand in the era of the pandemic. New inflation figures will be released next week, after the June CPI showed a 9.1% increase over 12 months.