Unemployment Claims Rise Amid Easing Labor Market Conditions

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits increased moderately last week, reflecting easing labor market conditions, yet opportunities are dwindling amid slow hiring.

Initial claims for state unemployment benefits rose by 11,000 to a seasonally adjusted 219,000 for the week ended February 1, according to the Labor Department. Economists polled by Reuters had expected 213,000 claims for the week.

> “There is nothing to worry about here,” said Carl Weinberg, chief economist at High Frequency Economics.

Unadjusted claims rose by 11,370 to 239,690, with significant increases in New York (up 4,092) and California (up 3,999), likely due to recent fires. New Jersey saw a decline of 1,343 claims, while other states remained relatively stable.

Labor market resilience supports economic expansion and allows the Federal Reserve to pause interest rate cuts while it evaluates the impacts of President Donald Trump’s administration’s fiscal, trade, and immigration policies, which are viewed as inflationary.

The U.S. central bank kept the benchmark overnight interest rate unchanged in the 4.25%-4.50% range last month after cutting it by 100 basis points since September. The policy rate had previously increased by 5.25 percentage points in 2022 and 2023 to control inflation.

U.S. stocks opened slightly higher, and the dollar rose against other currencies. Low layoffs support the labor market, though job opportunities are becoming scarce for the unemployed. As reported, there were 1.1 job openings for every unemployed person in December, down from 1.15 in November.

The number of individuals receiving benefits after the initial week of aid, a proxy for hiring, increased by 36,000 to a seasonally adjusted 1.886 million during the week ending January 25.

Lackluster Hiring

Despite a boost in business sentiment following Trump’s election in November, hiring plans remain lackluster, with employers announcing plans to hire 6,089 workers in January—down 24% from December but 13% higher than January 2024, marking the lowest January reading on record.

This claims data does not impact the employment report for January, scheduled for release on Friday, as it falls outside the survey period. Severe weather and wildfires in California are anticipated to have restrained job growth last month.

Economists project nonfarm payrolls increased by 170,000 jobs, down from a surge of 256,000 in December, while the unemployment rate is forecast to remain at 4.1%.

The government is also set to release its annual payrolls benchmark revision and new population weights for the household survey, which informs the unemployment rate.

Previously, the government estimated an employment level reduction of 818,000 jobs for the year through March, but updates suggest it will be around 675,000 jobs.

Inflation Concerns

A separate report from the Labor Department’s Bureau of Labor Statistics revealed that productivity growth slowed more than expected in the fourth quarter, leading to increased labor costs.

Nonfarm productivity, measuring hourly output per worker, grew at a 1.2% annualized rate in Q4, following a revised 2.3% growth rate in Q3. Economists had anticipated a 1.4% increase after an earlier 2.2% rate in Q3.

Productivity rose by 1.6% year-on-year and grew by 2.3% in 2024, an increase from 1.6% in 2023.

Since 2019, productivity has grown at a 1.8% rate, better than the prior business cycle’s 1.5% pace, yet below the long-term rate of 2.1%.

An uptick in productivity from 2023 has led policymakers to take less concern over wages as a source of inflation, although progress towards the Fed’s 2% inflation target stalled late last year.

Unit labor costs surged at a 3.0% rate in Q4, following a 0.5% growth in Q3. Year-on-year, labor costs increased at a 2.7% rate, growing from 2.2% in 2023 to 2.6% in 2024. Hourly compensation rose by 4.2% last quarter after a 2.9% increase in Q3.

Ben Ayers, a senior economist at Nationwide, noted, “The upward shift in labor costs has the potential to weigh on job growth in 2025, as firms look for ways to reduce expenses and maintain profits.”