Jobless claims rise to highest level in nearly 6 months

More Americans applied for unemployment benefits last week and while layoffs remain low, it was the fifth consecutive week that claims topped the 230,000 mark and the highest number in almost six months.

Applications for jobless aid for the week ending July 2 rose to 235,000, up 4,000 from the previous week and the most since mid-January, the Labor Department reported Thursday. First-time applications generally track with the number of layoffs. Until early June, claims hadn’t eclipsed 220,000 since January and have often been below 200,000 this year.

The total number of Americans collecting jobless benefits for the week ending June 25 rose by 51,000 from the previous week, to 1,375,000. That figure has hovered near 50-year lows for months.

The numbers indicate that a historically tight job market is easing up as companies let go of workers amid economic uncertainty.

“The labor market seems to be in a state of flux,” Peter C. Earle, research fellow at the American Institute for Economic Research, an academic think tank, said in a research note.

“The decisions of the Federal Reserve over the next six months will determine whether there is a gentle slope or a cliff ahead for economic growth and employment over the rest of 2022 and 2023,” he said.

All eyes on Fed, jobs as economy slows

On Wednesday, the Labor Department reported that U.S. employers advertised fewer jobs in May amid signs that the economy is weakening, though the overall demand for workers remained strong.

Employers posted 11.3 million job openings at the end of May, down from nearly 11.7 million in April. Job openings reached 11.9 million in March, the highest level on records dating back more than 20 years. There are nearly two job openings for every unemployed person.

The figures reflect the unusual nature of the post-pandemic economy: Inflation is hammering household budgets, forcing consumers to pull back on spending, and growth is weakening, heightening fears the economy could fall into recession. Yet companies are still scrambling to add workers. Demand has been particularly strong in travel- and entertainment-related services.

The Labor Department releases its May jobs report on Friday and analysts expect that employers filled more than 276,000 jobs. Though not an unhealthy number, it would be the lowest monthly figure in more than a year.

“The open question is whether job growth will merely slow to a more sustainable pace, consistent with labor force growth, or if the economy will fall into recession and there will be outright job losses,” PNC Chief Economist Gus Faucher said in a research note.

Jamie Cox, managing partner for Harris Financial Group, said the layoff figures were “moving in the Fed’s direction.” 

“It’s never a good thing to see layoffs, but the pressure on wages may have now peaked,” Cox said in a note. “A few more weeks of these types of numbers and maybe, just maybe, financial conditions are tight enough to allow the Fed to throttle back on the scale of rate increases,” Cox said.

More layoffs in tech fields

Some highly visible companies, many in tech, have announced layoffs recently.

The CEO of electric car maker Tesla, Elon Musk, acknowledged that the company was cutting about 10% of its salaried workforce, or 3.5% of its total headcount.

Netflix laid off 150 employees in May and another 300 in June after the streaming entertainment giant reported losing subscribers for the first time in more than a decade.

Online automotive retailer Carvana is letting go about 2,500 workers, roughly 12% of its workforce. Online real estate broker Redfin, under pressure from a housing market that’s cooled due to higher interest rates, is laying off 8% of its workers. Another real estate company, Compass, is shedding 450 employees.

Crypto trading platform Coinbase Global is cutting about 1,100 jobs, about 18% of its global workforce, in the wake of collapsing cryptocurrency prices.