New filings for jobless benefits rose to a 16-week high last week, driven by layoffs in Kentucky, California and Pennsylvania.

It might be too soon to call for the bottom of new weekly jobless claims, but, with economic growth slowing and the Federal Reserve raising interest rates, it is not advisable to rule out such a scenario.

Initial filings reached 218,000—the average level in 2019—from a downwardly revised 197,000 in the prior week.

Our preferred measure that takes out weekly volatility—the 13-week moving average—continued to flatten out as new claims have ticked up moderately in recent weeks.

While there was no break in the 13-week trend line, the four-week moving average began to show a reverse to the upside from April’s low of 170,500. That was in line with the slowdown of economic activities and companies reassessing their employment plans.

The total number of continuing claims inched down two weeks ago for the week ending May 7 to 1.317 million from 1.342 million. The insured rate also fell to 0.9%, the lowest since December 1969. With initial claims rising for the week ending May 14, both of these series will most likely increase as well.

The takeaway

With the Fed’s recent hawkish tone on inflation and multiple 50 basis-point rate increases on the horizon, we expect that labor demand will fall sharply. As a result, the economy will slow down, while layoffs will pick up.

It is not farfetched to expect companies, facing disappointing earnings and growth potential because of inflation, supply chain bottlenecks and lower demand, to start laying off employers in the coming months before the impact of rate hikes begins to materialize.