WASHINGTON (AP) — The number of Americans applying for unemployment benefits fell last week, signaling that the job market remains resilient despite the pressure of high interest rates.
The Labor Department reported Thursday that jobless claims dropped by 7,000 to 227,000. Additionally, the four-week average of claims, which helps smooth out week-to-week fluctuations, fell by 4,500 to 236,500. Weekly filings for unemployment benefits, often seen as a proxy for layoffs, continue to remain low by historical standards.
However, it’s worth noting that these claims began to rise in May, reaching 250,000 by late July, indicating that the high interest rates may be starting to impact the U.S. job market. But the recent two-week decline in claims has eased concerns that the labor market was deteriorating rapidly rather than just slowing. As Robert Frick, an economist at the Navy Federal Credit Union, remarked, “Claims calmed down and their recent rise appears to be just a blip, not a fundamental shift in the labor market.”
In the week ending on August 3, 1.86 million Americans were receiving jobless benefits, marking a decrease of 7,000 from the previous week. From January through May, unemployment claims averaged a notably low 213,000 per week. Despite the rise observed in May, the current figures suggest a more stable job market than initially feared.
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The Federal Reserve has been actively fighting inflation, which hit a 40-year high just over two years ago. By raising its benchmark interest rate 11 times in 2022 and 2023, the Fed has pushed rates to a 23-year high. Although inflation has steadily declined, from 9.1% in June 2022 to a three-year low of 2.9% last month, the economy and job market have shown surprising resilience. This resilience has defied widespread expectations that the U.S. would plunge into a recession due to higher borrowing costs.
Yet, the effects of higher interest rates are beginning to show. Employers added just 114,000 jobs in July, a sharp drop from the January-June monthly average of nearly 218,000. Additionally, the unemployment rate has risen for the fourth consecutive month, though it remains relatively low at 4.3%. Monthly job openings have been on a steady decline, falling from a record 12.2 million in March 2022 to 8.2 million in June.
The economic situation is likely to weigh heavily on voters as they approach November’s presidential election. Despite the solid job market and the slowdown in inflation, many Americans remain frustrated by consumer prices, which are still 19% higher than before inflation began to surge in 2021. While much of the blame is directed at President Joe Biden, it remains unclear whether voters will also hold Vice President Kamala Harris accountable as she pursues the presidency.
As signs of an economic slowdown continue to accumulate and inflation edges closer to the Fed’s 2% target, expectations are mounting that the Federal Reserve may start cutting interest rates at its next meeting in September.
