US jobless claims rise to 197,000 as labor market holds steady

The US labor market extended its streak of low layoffs last week as initial jobless claims rose less than economists had expected.

The number of Americans filing new unemployment claims increased by 9,000 to a seasonally adjusted 197,000 in the week ended July 25, the Labor Department said Thursday, below the 200,000 median forecast in a Reuters poll.

The Federal Reserve on Wednesday left its benchmark overnight interest rate in a 3.50 percent to 3.75 percent range, with three members of the policy-setting committee dissenting in favor of a quarter-point hike, as officials weigh a labor market that remains tight against slowing economic growth.

The prior week's figure was revised up by 1,000 to 188,000, which had been the lowest since late 1969. The four-week moving average, which smooths weekly volatility, fell by 5,000 to 202,750. Continuing claims, a proxy for hiring, declined by 7,000 to 1.782 million during the week ended July 18. The insured unemployment rate held at 1.2 percent.

The claims data comes as the broader economy shows signs of cooling. Gross domestic product grew at an annualized 1.5 percent pace in the second quarter, below expectations, while the Fed's preferred inflation gauge, the PCE price index, ran at 3.7 percent — still well above the central bank's 2 percent target. If inflation remains elevated, Fed officials have signaled they are prepared to raise rates further, raising borrowing costs for businesses and potentially weighing on hiring.

Auto Plant Shutdowns Skew Seasonal Adjustments

The increase partially unwound the prior week's decline. Claims tend to be volatile in July when automakers typically idle plants for annual retooling, but General Motors kept most of its assembly plants running this year and Ford Motor canceled its traditional shutdowns for truck plants, potentially distorting the government's seasonal adjustment model.

Among states, New York posted the largest decrease in initial claims, falling by 17,156 on fewer layoffs in transportation and warehousing, health care and educational services. Michigan dropped by 4,974, California by 4,242, Texas by 2,354 and Pennsylvania by 2,266. Louisiana recorded the largest increase, up 346.

Cooling Economy Tests Labor Market Resilience

The economy added 57,000 jobs in June, less than half the prior month's total and below the 110,000 economists had expected. The unemployment rate fell to 4.2 percent from 4.3 percent in May, though the decline was driven largely by people leaving the labor force.

A Conference Board survey Tuesday showed the share of consumers viewing jobs as "plentiful" dropped in July to the lowest level since February 2021, suggesting the labor market could soften further. The continuing claims data covers the period during which the government surveyed households for July's unemployment rate, pointing to an upside risk for the jobless reading.

Gas prices have risen above $4 a gallon on average, squeezing consumer budgets and hitting fuel-dependent businesses. West Texas Intermediate crude traded at $83.36 a barrel Thursday after a 6.6 percent rise a day earlier, as the US-Iran war continues to push energy costs higher. The S&P 500 edged lower in early trading as investors weighed the mixed signals from a resilient labor market against slowing growth and sticky inflation.

This article is for informational purposes only and does not constitute investment advice.