The number of new applications for unemployment benefits rose by 5,000 to 245,000 last week, the Labor Department reported Thursday.
Rising jobless claims, a proxy for layoffs, are a sign the unusually strong labor market is finally starting to react to the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation. Claims have been trending upward in recent weeks.
The weekly jobless claims number has been closely watched over the past year, given the Fed has been hiking aggressively.
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Despite the job market’s rip-roaring strength for months even as the Fed tightened, there are now some signals that the labor market is beginning to soften in response to the barrage of rate revisions, the most recent of which being a quarter of a percentage point increase in the federal funds rate last month.
In March, 236,000 jobs were added, the Bureau of Labor Statistics reported this month, lower than the average of 334,000 over the last six months (notably, it was the weakest monthly increase since December 2020).
The March employment report also showed that wage growth is also slowing. There was a mere 0.3% increase in average hourly earnings, pushing the annual increase to 4.2% — the lowest it has been since June 2021, right when inflation began meaningfully rising.
Additionally, there were about 9.9 million job openings across all sectors in February, according to the Bureau of Labor Statistics Job Openings and Labor Turnover Survey, the first time in nearly two years that the number of openings fell below 10 million.
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Even with the welcome signs of softening, most investors predict that Fed Chairman Jerome Powell and other officials aren’t yet ready to take their collective foot off the gas. Meaning there might be another rate hike for this year just around the corner following the central bank’s next meeting in two weeks.
Investors now assign about an 87% chance that the Fed will raise rates yet again, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.