Unemployment Claims Jump on Economic Weakness

Unemployment claims jumped in the United States while the Federal Reserve and International Monetary Fund express concerns that global growth is slowing.

The Department of Labor announced Thursday that seasonally adjusted initial unemployment claims rose to 297,000 for the week ending July 4, up 5.3% from the prior week. The four-week moving average for unemployment claims rose to 279,500. The rise was far above most analysts’ expectations.

Unemployment claims jumped in the United States while the Federal Reserve and International Monetary Fund express concerns that global growth is slowing.

The Department of Labor announced Thursday that seasonally adjusted initial unemployment claims rose to 297,000 for the week ending July 4, up 5.3% from the prior week. The four-week moving average for unemployment claims rose to 279,500. The rise was far above most analysts’ expectations.

While the rise has worried some economists that the job market is not showing a sustainable path to recovery, others dismiss the data as short-term volatility that does not yet establish a trend. Even with the rise, the rate of unemployment claims remains at historic lows, reaching the lowest level since early 2000.

Unemployment claims have fallen steadily since 2009, when they peaked at over 650,000, only to fall sharply in 2010 and decline steadily thereafter. Many economists project that a 4-week moving average of initial claims should remain below 300,000 for the rest of the year and even into 2016, as the labor market stabilizes. However, economists worry that the labor participation rate continues to weaken over time, which is hampering total aggregate demand and productivity.

Economic Weakness

The low labor participation rate is one of the many labor indicators that the Janet Yellen, the Federal Reserve Chairwoman, has chosen to focus on in determining the long-term growth of the U.S. economy. This week Yellen and the Federal Reserve Open Market Committee released a statement that warned of tepid growth, noting the labor market is “balanced” but several other trends were making them “cautious in assessing the outlook,” according to a statement. “In particular, they were concerned that consumers could remain cautious or that the drag on sectors affected by lower energy prices and the higher dollar could persist,” the Fed said in a statement, although adding that labor market improvements could counter these headwinds.

“Others, however, viewed the strength in the labor market in recent months as potentially signaling a stronger-than-expected bounce back in economic activity,” the FOMC said.

Because of this weakness, the Federal Reserve has decided to maintain its current monetary policy and not raise interest rates in the near term, leading some analysts to predict that rates will not rise in 2015. “Many participants emphasized that, in order to determine that the criteria for beginning policy normalization had been met, they would need additional information indicating that economic growth was strengthening, that labor market conditions were continuing to improve, and that inflation was moving back toward the Committee’s objective,” the FOMC said, adding that inflation remained below 2%.

While the FOMC expressed caution, the International Monetary Fund also downgraded its expectations for global growth to a 3.3% rise in GDP. Weakness in the U.S. mostly drove the downgrade, which the IMF expects to grow at just 2.5% in 2015.