Initial jobless claims reached their highest level since mid-November last week, according to statistics issued by the Labor Department on Thursday. This is the latest indication that a historically tight labor market is beginning to loosen.

Claims totalled 251,000 for the week ending July 16, up 7,000 from the previous week and exceeding the Dow Jones forecast of 240,000.

The increase increased applications for unemployment insurance to their highest weekly level since November 13, 2021 and gave more evidence that the labour market, which was on fire in 2021, has cooled this year.

Continuing claims, which lag the headline data by one week, jumped to 1,384,000, the highest level since April 23.

Separate data released on Thursday also revealed deterioration in the employment outlook.

The Philadelphia Fed manufacturing index dropped to -12.3, a 9-point decline from a month ago and a far poorer result than the Dow Jones prediction of 1.6. The value shows the difference in percentage between firms reporting activity increase and those reporting contraction.

Specifically, the employment index was 19.4, a fall of 9 points. This is the lowest figure since May 2021 and a sign that hiring is decreasing. However, it does imply that hiring is continuing to expand. The average workweek reading was 6,4, indicating that productivity may be slipping for the fourth consecutive month.

Eighty-eight point six percent of respondents to the study stated that they had raised earnings and compensation during the last three months, with no respondents reporting a decrease.

The poll also revealed that inflationary pressures were elevated but cooled. Both the prices paid and prices received indexes decreased from the previous month but remained elevated, with corresponding levels of 52.2 and 30.3.

There is a great deal of uncertainty around the future course of the economy.

Employment has been the major bright spot, with average nonfarm payroll additions of 457,000 per month in the first half of the year. However, recent growth have slowed, averaging 375,000 over the previous three months.

With two consecutive quarters of negative growth, the U.S. may be in the process of satisfying the criteria of a recession according to the rule of thumb. According to the Federal Reserve Bank of Atlanta, the gross domestic product declined 1.6% in the first quarter and is projected to fall 1.6% in the second quarter.

Fed policymakers are likely to increase interest rates by 0.75 percentage points the following week, bringing overnight borrowing rates to a range of 2.25 to 2.5 percent. The Federal Reserve is attempting to decelerate an economy that has delivered the greatest inflation rate since 1981.

Reference: 

JeffCoxCNBCcom. (2022, July 21). Jobless claims rise again in another sign that labor market is cooling. CNBC. Retrieved July 22, 2022, from www.cnbc.com/2022/07/21/jobless-claims-rise-again-in-another-sign-that-labor-market-is-cooling.html