The number of Americans filing new applications for jobless benefits decreased slightly last week, but opportunities for re-employment for laid-off workers are becoming increasingly limited, suggesting that the unemployment rate likely remained high in August. The Labor Department reported on Thursday that initial claims for state unemployment benefits dropped by 2,000 to a seasonally adjusted 231,000 for the week ending August 24. Economists surveyed by Reuters had predicted 232,000 claims for the latest week.
Claims have decreased from an 11-month high in late July as temporary shutdowns at motor vehicle plants for model retooling and the impact of Hurricane Beryl diminished. These claims still align with a gradually cooling labor market, which should help to mitigate fears of a rapid decline. The Bureau of Labor Statistics recently estimated that employment growth was overestimated by 68,000 jobs per month over the 12 months through March. However, most economists consider this benchmark revision estimate misleading.
The benchmark estimate is derived from the Quarterly Census of Employment and Wages, which is based on reports from employers to state unemployment insurance programs and does not include undocumented immigrants. Economists at Morgan Stanley noted that the BLS revisions likely understated job growth because the administrative data from unemployment insurance files likely missed many jobs filled by undocumented workers.
The slowdown in the labor market, marked by a significant reduction in hiring, has caught the attention of Federal Reserve officials. Fed Chair Jerome Powell recently indicated that interest rate cuts are imminent, reflecting concerns over the jobs market. Financial markets anticipate the U.S. central bank to start its easing cycle next month with a 25-basis-point reduction in its benchmark overnight interest rate, although a half-percentage point cut is also possible.
The number of people receiving benefits after an initial week of aid, a measure of hiring, rose by 13,000 to a seasonally adjusted 1.868 million during the week ending August 17. These continued claims are near levels last seen in late 2021, indicating longer periods of unemployment. The continued claims data were collected during the period when the government surveyed households to determine the unemployment rate for August. Economists expect the jobless rate this month to either remain near a three-year high of 4.3% or drop to 4.2%.
The unemployment rate has increased for four consecutive months, partly due to an immigration-induced surge in labor supply.
