Jobless Claims Spike: Is Unemployment Rising For Real This Time?

Job seekers read instructions during a career fair where job seekers can meet with prospective employers during a City of Los Angeles career fair offering to fill vacancies in more than 30 classifications of jobs on November 2, 2023 in Los Angeles, California.

Frederic J. Brown / AFP via Getty Images

Key Takeaways

  • Unemployment claims rose by 13,000 last week, more than triple what forecasters had expected.
  • While claims remain relatively low, the uptick could signal the labor market is getting worse for workers.
  • High interest rates, meant to combat inflation, are making it harder for businesses to borrow money to pay workers.

A sharp increase in unemployment claims last week has some experts asking if this is just a temporary blip, like an earlier uptick this summer, or the first chills of widespread layoffs.

There were 231,000 new claims for unemployment the week ending Saturday, an increase of 13,000 from the previous week, the Department of Labor said Thursday. That was the most weekly unemployment claims in three months, and the increase was more than triple the 4,000-claim uptick that forecasters polled by Dow Jones Newswires and the Wall Street Journal had expected.

While the overall level of unemployment claims is still below pre-pandemic levels, the unexpected increase was the latest sign that the high-flying labor market is coming down to earth. The Federal Reserve’s campaign of anti-inflation interest rate hikes may finally be starting to hurt employment, as some economists have long predicted.

The Fed has raised its benchmark interest rate to a 22-year high in an effort to discourage borrowing and spending and put a lid on rampant inflation. That’s pushed up interest rates for all kinds of loans taken out by individuals and businesses. 

For example, small businesses paid an average of 9.1% interest on short-term loans in October, just shy of the highest since 2006, a survey by the National Federation of Independent Businesses showed. With loans getting costlier, and banks getting stricter about who they lend to, it’s getting tougher for companies to hire and expand.

“It's easy to see why firms would be starting to increase layoffs. Working capital is now much more expensive and harder to get,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in a commentary. “As gross margins come under pressure from softening demand, firms will seek to reduce labor costs in order to protect net earnings.”

It’s not yet clear how much that’s actually happening. As economic data goes, unemployment claims are a volatile indicator, prone to bouncing up and down from week to week. Claims jumped this summer, with 265,000 people filing for unemployment the week ending June 25, only to plummet back down in subsequent weeks.

“It’s too early to tell if this marks the start of a sustained increase,” Shepherdson wrote.

Still, the report held other signs of a weakening job market: Ongoing unemployment claims rose by 32,000 to 1.9 million, the highest since November 2021, suggesting that it’s getting harder for unemployed people to find new work.

Not to mention, Fed officials have vowed to squeeze the economy until high inflation is subdued by keeping its benchmark rate higher for longer. As household budgets face pressure from higher borrowing costs on credit cards, mortgages, and car loans, not to mention the continued impact of past increases on the cost of living, there may be less demand for the goods and services companies provide, reducing the incentive to hire.

“There is little prospect for re-energized labor demand on the near-term horizon as interest rates are set to remain ‘higher for longer,’” Gus Faucher, chief economist at PNC, wrote in a commentary. “Fading consumer demand entering 2024 should thus place upward pressure on jobless claims going forward as those enduring layoffs and new job seekers find opportunities less readily available.”

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  1. Department of Labor. "Unemployment Insurance Weekly Claims."

  2. MarketWatch. "U.S. Economic Calendar."

  3. National Federation of Independent Businesses. "Small Business Optimism Index."

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