US weekly jobless claims highest in nearly a year amid summer volatility

number of Americans filing new applications for unemployment benefits increased to an 11-month high last week, suggesting some softening in labor market, though claims tend to be volatile around this time of year.

report from Labor Department on Thursday also showed number of people on jobless rolls swelling in mid-July to highest level since late 2021. It could fan fears of a rapid labor market deterioration, which surfaced last month when data showed unemployment rate rose to a 2-1/2-year high of 4.1 per cent in June.

report was supportive of a September interest rate cut, though most economists cautioned against reing too much into rise in claims, arguing that justing data for seasonal fluctuations was a challenge in summer because of temporary automobile plant closures for retooling.

Federal Reserve Chair Jerome Powell told reporters on Wednesday that while he viewed changes in labor market as "broly consistent with a normalization process," policymakers were "closely monitoring to see wher it starts to show signs that it's more than that."

"Widespre temporary layoffs in vehicle industry for retooling have greatly varied in last three Julys following complete shutdown in 2020 for COVID," said Stuart Hoffman, senior economic visor at PNC Financial. " labor market is still historically strong, but not quite as strong as it was in 2022 and 2023."

Initial claims for state unemployment benefits increased 14,000 to a seasonally justed 249,000 for week ended July 27, highest level since August last year. Economists polled by Reuters h forecast 236,000 claims for latest week.

Claims broke above upper end of ir 194,000-245,000 range for this year. four-week moving average of claims, which strips out seasonal fluctuations from data, rose 2,500 to 238,000 last week.

Filings have been on an upward trend since June, with part of rise blamed on temporary motor vehicle plant shutdowns and disruptions caused by Hurricane Beryl in Texas.

Unjusted claims dropped 10,012 to 215,827 last week. That was less than half of 21,901 decline that seasonal factors, model used by government to iron out seasonal fluctuations from data, h expected.

Claims surged 4,033 in Michigan and shot up 3,352 in Missouri, states with a heavy presence of motor vehicle assembly plants. Auto makers typically idle assembly lines in July to retool for new models, but schedules are different for every manufacturer.

Claims also increased in Massachusetts. Applications in Texas dropped 6,232 after surging in prior two weeks. y remained above ir pre-hurricane level. Filings also decreased in New York, Ohio, Florida, Tennessee and South Carolina.

Claims rose in July last year through first half of August, before fully reversing course by early September. Government data on Tuesday showed layoffs rate in June was lowest in more than two years.

"We suspect that some of recent uptick will turn out to be a function of seasonal justment issues that will be smood out in future revisions, but trend is still higher than we anticipated this summer," said Lou Crandall, chief economist at Wrightson ICAP.

Aside from seasonal volatility, anecdotal evidence still points to a loss of labor market momentum. An Institute for Supply Management (ISM) survey on Thursday showed a measure of factory employment dropping to a four-year low in July. Its manufacturing PMI dropped to an eight-month low.

Comments from companies were downbeat, with some describing business as "slowing," markets showing "weakness" and demand continuing to "soften."

Fed on Wednesday kept its benchmark overnight interest rate in 5.25 per cent-5.50 per cent range, where it has been since last July, but opened door to reducing borrowing costs as soon as its next meeting in September.

Stocks on Wall Street were tring lower. dollar vanced against a basket of currencies amid rising geopolitical tensions. yield on benchmark 10-year U.S. Treasury note fell to lowest level since early February.

Strong Worker Productivity

slowdown in labor market is being driven by low hiring as U.S. central bank's rate hikes in 2022 and 2023 dampen demand. A third report on Thursday from global outplacement firm Challenger, Gray & Christmas showed planned job cuts by U.S.-based companies dropped 47 per cent to 25,885 in July. y, however, planned to hire only 3,676 workers in July.

number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 33,000 to a seasonally justed 1.877 million during week ending July 20, highest level since November 2021, claims report showed. claims data has no bearing on July's employment report as it falls outside survey period.

government is expected to report on Friday that nonfarm payrolls increased by 175,000 jobs last month after rising by 206,000 in June. unemployment rate is forecast unchanged at 4.1 per cent, having risen for three consecutive months.

flow of upbeat news on inflation continued. A fourth report from Labor Department's Bureau of Labor Statistics on Thursday showed nonfarm productivity, which measures hourly output per worker, increased at a 2.3 per cent annualized rate in second quarter after rising at a 0.4 per cent pace in January-March period. Productivity vanced at a 2.7 per cent pace from a year ago.

Unit labor costs - price of labor per single unit of output - rose at a 0.9 per cent rate in April-June quarter after vancing at a 3.8 per cent rate in first quarter. government reported on Wednesday that annual labor costs recorded ir smallest rise in 2-1/2 years in second quarter.

" revival in productivity growth is encouraging for broer inflation and economic outlook," said Gregory Daco, chief economist at EY-Parnon. "If firms can generate strong productivity growth, y will be able to control costs and protect margins without sacrificing talent in an environment of still-elevated wages and fing pricing power."