Initial jobless claims rise amid labor market slowdown

REAL ECONOMY BLOG | August 04, 2022

Authored by RSM US LLP

Initial jobless claims ticked up last week, continuing their gradual rise since April as layoffs began to increase.

New claims for jobless benefits rose by 2.4% to 260,000 for the week ending July 30 after a brief decline in the prior week, according to government data released on Thursday.

The four-week moving average reaffirmed our forecast of a slow but steady climb in the coming months, mostly because of strong labor demand that has kept a lid on layoffs. Last week’s layoffs rose by 6,000 to 254,750, marking the 17th straight week of increases.

Recipients of unemployment benefit have not been unemployed for too long; continuing claims rose by only 48,000 to 1.4 million for the week ending July 30.

The gradual increase in new claims will not be a cause for concern until they hit 350,000, which is equivalent to around a 1 percentage-point increase in the unemployment rate, which stands at 3.6% ahead of Friday’s release of July jobs data.

At this rate of increase in jobless claims, that won’t happen until early 2023, in line with our expectation for a recession to take place at the same time.

The main risk to such an outlook is whether the economy descends into a recession between now and then, which would lead to a spike in claims, not a gradual rise.