Jobless Claims Climb as Manufacturing Hiring Stalls

People walk by the New York Stock Exchange in New York City on July 5, 2024. Spencer Platt/Getty Images

Unemployment claims rose last week while hiring activity in the U.S. manufacturing sector slowed to a standstill last month, signaling potential strain in the labor market.

Initial filings for unemployment benefits rose by 4,000, to 232,000 for the week that ended on Aug. 17, according to data released on Aug. 22 by the Department of Labor. The number was slightly above consensus estimates of 230,000 and higher than the previous week’s upwardly revised level of 228,000.

Initial claims, which are a high-frequency data-point tracking the health of the labor market, tend to be viewed by analysts as a proxy for unemployment, which has been drifting higher in recent months as the economy has cooled.

Continuing jobless claims, which reflect the number of Americans continuing to collect unemployment benefits after filing an initial claim, also rose by 4,000 for the week, to 1.863 million, according to the Labor Department data. This is the highest level since Nov. 27, 2021, with an increase in continuing claims suggesting growing difficulty finding a job after losing one.

The unemployment claims numbers are the latest data on the health of the labor market, which faced renewed scrutiny after the Aug. 21 release of figures showing that the U.S. economy created 818,000 fewer jobs in the 12 months through March 2024 than the government had initially reported.

While the downward revision put the true job creation numbers roughly in line with pre-pandemic levels, markets saw it as a sign of labor market weakness, pushing up the odds of a Federal Reserve rate cut in September from roughly 62 percent to 71.5 percent.

Markets have been increasingly on edge as the labor market has shown more signs of strain amid the current high interest rate environment.

In a bid to cool soaring inflation, the Fed brought rates up quickly to their current range of 5.25 to 5.5 percent, with higher borrowing costs dampening economic activity. Investors now overwhelmingly expect a 25 basis-point cut at the central bank’s next policy meeting, on Sept. 18.

When the government released the latest job creation numbers at the beginning of August, the numbers were well below expectations, triggering a large stock selloff. While markets have largely recovered, analysts warn of more volatility ahead, with each incoming release of economic data serving as a possible catalyst.

Other economic data released by S&P Global on Aug. 22 showed that U.S. manufacturing saw its steepest rate of deterioration since December while employment in the manufacturing sector slowed to near-stagnation.

“Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline,” Chris Williamson, chief business economist at S&P Global, said in a statement, in which he said that the so-called soft landing scenario, in which inflation falls but the economy doesn’t tip into a recession, “looks less convincing.”

“The manufacturing sector’s forward-looking orders-to-inventory ratio has fallen to one of the lowest levels since the global financial crisis,” he added.

The Federal Reserve Bank of Chicago’s National Activity Index (CFNAI), another data point released on Aug. 22, fell to minus 0.34 from minus 0.09 in June, reflecting a deeper drop in below-trend growth. The CFNAI is a forward-looking gauge of overall economic activity that some analysts say is arguably one of the most important—and overlooked—economic indicators.

Wall Street was mostly flat in early morning trading following the release of the jobless claims numbers and the manufacturing data.

Recent months have, on occasion, seen markets react to weak economic data by rallying as the bad numbers bolster the case for a Fed rate cut, with cheaper money tending to buoy stocks.