• June 5, 2023

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As markets fend off one of the worst sell-offs in nearly two years, new jobless claims posted an unexpected increase for the third straight week on Thursday, according to data released by the Labor Department, a potential indication that broader economic troubles could start spelling trouble for the hot labor market.

Key Facts

About 218,000 people filed initial jobless claims in the week ending May 14, up 21,000 from the previous week, according to the weekly data released Thursday.

Economists were only expecting about 200,000 initial claims, according to Bloomberg; new weekly claims hit a pandemic low of 166,000 in late March.

Despite the spate of unexpected increases, the job market ”remains a source of strength in an economy riddled with worries about inflation, higher interest rates and more,” says Bankrate analyst Ted Rossman, noting that continuing unemployment claims have fallen to the lowest level in more than 50 years.

But Pantheon Macro Chief Economist Ian Shepherdson called the weekly increase “strange” in a morning note, adding that he expects the Labor Department will adjust their estimate down next week but saying he “can’t rule out the possibility” that some firms have reacted to recently surging energy prices by laying off staff.

Though stocks and the economy don’t always have a tight correlation, the rise in jobless claims, coupled with recently weak earnings reports and a “fierce” stock-market sell-off, “suggests that questions about the durability of the economy are leading to an uptick in layoffs,” LPL Financial Chief Equity Strategist Quincy Krosby said in emailed comments Thursday.


In recent weeks, corporate giants including Amazon and Walmart have both signaled a slowdown in their hiring needs, with Walmart executives on a Tuesday conference call pointing to “overstaffing” as a drag on disappointing profits last quarter. Meanwhile, Coinbase and Wayfair have both announced plans to slow or freeze planned headcount expansions. “No one is announcing wholesale layoffs—at least not yet—but the collective actions should help cool labor overall,” says analyst Adam Crisafulli of Vital Knowledge Media.


Key Background

After losing more than 20 million jobs at the height of pandemic uncertainty in the spring of 2020, the labor market has quickly and forcefully led the economic recovery. According to data released earlier this month, the unemployment rate clocked in at 3.6% in April—close to a prepandemic rate of 3.5% in February 2020, when unemployment was hovering at its lowest level since 1969. “In the face of rising uncertainty, the U.S. economy continues to add jobs at a remarkable rate,” says Morning Consult chief economist John Leer, though he cautions the growth will be hard to maintain as the Federal Reserve raises interest rates in the next few months, adding: “That’s just the way monetary policy works.” The threat of rising interest rates, which tend to hurt company earnings, has battered the stock market in recent weeks, pushing the tech-heavy Nasdaq down nearly 28% this year.

Chief Critic

“Claims have been rising since mid-March and can double before we even get to prior-period cycle lows,” DataTrek analysts Nick Colas and Jessica Rabe said in a morning note, pointing out employment growth tends to slow as interest rates go up and saying hiring could slow down as soon as this year. “While the Fed won’t say it, incremental joblessness is an inevitable outcome of current policy.”

Further Reading

U.S. Added 428,000 Jobs In April—Beating Expectations As Hot Labor Market Spurs Fed Rate Hikes (Forbes)

Dow Falls 1,100 Points, Stock Market Selloff Continues As Major Retailers Warn Of Rising Cost Pressures (Forbes)


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