Number of US Workers Collecting Unemployment Jumps to Multiyear High

The Department of Labor Building in Washington, on March 26, 2020. (Alex Edelman/AFP via Getty Images)

The number of U.S. workers collecting unemployment benefits has risen to its highest level since 2021, delivering a fresh sign of labor market cooling as the Federal Reserve mulls when to cut interest rates after holding them at their highest level in 23 years.

Continuing jobless claims, which reflect the number of Americans continuing to collect unemployment benefits after earlier filing an initial claim, rose to 1.87 million for the week ended July 6, according to data released Thursday by the Department of Labor.

That’s the highest level since Nov. 27, 2021, when that figure stood at 1.89 million.

Some market analysts saw this as evidence that the labor market is losing some steam, bolstering the case for a Fed rate cut.

“U.S. continuing jobless claims have increased by 40 percent from their three-year low, hinting at a softer job market,” MacroMicro, a data analytics firm, posted on its account on X. “This could lead the Fed to cut rates as soon as September.”

Few analysts expect the Fed to lower rates at its next policy meeting in July, but investors are overwhelmingly betting on a cut at the September meeting. The probability of a quarter-point rate decrease in September, as implied by futures contracts, is 93.5 percent, with another 4.6 percent expecting a half-point reduction.

High interest rates make it more expensive to borrow money, resulting in a cooling effect on spending and demand. When consumers spend less, businesses pull back on investment and hiring, which in turn dents the job market.

Faced with the highest inflation in decades in 2022, the Fed hiked rates at its fastest pace since the 1980s, bringing them to their current range of 5.25–5.50 percent in a little over a year. The last time the benchmark interest rate was at a comparable level was around 23 years ago.

Fed officials have become increasingly wary of labor market risks as they weigh when to cut rates. Federal Reserve Chair Jerome Powell testified before Congress at the beginning of July, telling lawmakers that labor market conditions have “cooled considerably” from where they were when the central bank embarked on its rate-hiking cycle two years ago.

In another sign that the jobs market seems to be softening, the number of first-time unemployment filings came in at 243,000 for the week ended July 13, the Labor Department data showed. That’s a 20,000 increase over last week’s numbers and higher than analysts expected.

Weekly jobless claims have been drifting higher since the beginning of the year, with the four-week moving average—which smooths out some week-to-week fluctuations—showing this upward trend more clearly.

Some economists saw the latest data as a sign of labor market softening, but not a deeper breakdown.

“Labor market is cooling, not retrenching,” Gregory Daco, chief economist at consulting firm Ernst & Young, wrote in a post on X.

Economists are becoming increasingly focused on labor market dynamics in light of the current high interest-rate environment, which has a dampening effect on both inflation and economic activity, including hiring.

“With the qualification that the weekly numbers tend to be inherently noisy: The just-announced US weekly jobless claims were notably higher than expected: 243,000 versus the consensus forecast of 229,000,” economist Mohamed El-Erian, president of Queens’ College, Cambridge University, said in a post on X.

“The question, and it is important, is whether this is noise or an indication of a weakening of the labor market in a manner that results in growth losing momentum much quicker than most currently expect,” he added.

The unemployment rate has risen for four straight months—from 3.8 percent in March to 4.1 percent in June. While 4.1 percent is still low by historical standards, it’s the highest level since November 2021.

In a blog post on labor market indicators, MacroMicro noted that labor demand has fallen back down to pre-pandemic levels, as measured by the ratio of job vacancies to the number of unemployed persons. The analytics firm also highlighted the so-called Sahm Rule Recession Indicator, which identifies signals related to the start of a recession.

“The Sahm Rule Recession Indicator is at 0.43 percent, nearing the recession signal of 0.5 percent,” the firm wrote in a post on X, while hinting in its blog post that this indicator is approaching a “trigger point.”

Economists have been debating whether the Fed’s monetary policy interventions will lead to a recession or whether the U.S. economy will manage to stick a so-called “soft landing,” meaning a measured cooling that brings inflation back to the Fed’s 2 percent target without significant damage to the labor market.