U.S. labor market loosening as unemployment claims hit a three-month high (rose by 13,000 to 231,000 the week ending November 11th) according to Reuters on November 16th, suggesting that the labor market was gradually cooling against the Federal Reserve's fight against Inflation. The Claims Report also showed unemployment rolls expanding to levels compared with two years ago. The higher interest rates curb demand, The slower the labor market will move. These applications are also seen as representative of the layoff volume in a given week.

The Federal Reserve has been tapping the brakes on the economy and the labor market for nearly two years, yet for months, and it seemed as though the aggressive actions from the Fed had little impact, and companies have been forced to pay more to land employees. The central bank raised its benchmark rate 11 times since March of 2022 as part of that effort. However, cracks are starting to show.

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Applications Edging Up

Over 1.87 million people were collecting unemployment benefits the week ending November 4th, about 32,000 more than the previous week and the most in almost two years. It was the sixth straight week that continuing claims rose.

"Job growth remains strong, and businesses have yet to start reducing their workforce in a significant way," said Rubeela Farooqi, chief U.S. economist for High Frequency Economics. "But the continuing claims data are pointing to some softening in labor demand, in line with what the Fed wants to see."

Data Indicator

One of the indications that the labor market is looser than it's been in the post-pandemic era is that claims are constantly rising because many of those already unemployed may now be having a more challenging time finding work, economists propose. U.S. employers also slowed their hiring in October, adding a modest but decent 150,000 jobs. It's only the third time monthly job gains have come in under 200,000 in almost three years. Yet all three of those instances have come in the past five months.

"The claims data are consistent with a job market that is cooling enough to keep rate hikes off the table, but too strong to make rate cuts a consideration any time soon," said economist Nancy Vanden Houten of Oxford Economics. "The Fed is surely encouraged by recent inflation data but needs to see a further slowdown in the labor market and wage growth to be persuaded that inflation is on a sustainable path back to 2%."

Fed officials left the benchmark rate alone at their most recent policy meeting. Another increase before the end of the year has not been ruled out, yet current data showed that Inflation is continuing to subside, a priority for Fed Chair Jerome Powell. Overall, Inflation did not rise from September to October, the first time consumer prices collectively have not budged from one month to another in more than a year. Compared with a year earlier, prices rose 3.2% in October, the smallest rise since June, though still above the Fed's 2% inflation target. The four-week moving average of jobless claim applications flattened out some weekly volatility and rose by 7,750 to 220,250.

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