Despite upward trend, unemployment claims continue to allay concerns about the labor market

Slightly more Americans filed for unemployment benefits last week, but the number of claims remains at healthy levels.

The number of jobless claims rose by 4,000 to 232,000 in the week of August 17, the U.S. Labor Department said Thursday. The four-week average of claims, which smooths out some of the weekly fluctuations, fell by 750 to 236,000.

In the week ending August 10, 1.86 million Americans received unemployment benefits, 4,000 more than the previous week.

Weekly jobless claims, which serve as an indicator of layoffs, remain low by historical standards.

From January to May, an average of only 213,000 people applied for unemployment benefits per week. But in May they rose again and reached the 250,000 mark at the end of July. This made it clear that high interest rates are putting a strain on the US labor market.

However, this week's slight increase in claims follows two consecutive weeks of declines, largely allaying fears that the labor market situation is rapidly deteriorating rather than just weakening.

The Federal Reserve, battling inflation that hit a four-year peak just over two years ago, raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high. Inflation has fallen steadily – from over 9% in June 2022 to a three-year low of 2.9% last month. Despite higher borrowing costs, the economy and hiring continued to grow, belying widespread fears that the U.S. was on the verge of a recession.

The economic situation is weighing heavily on voters as they prepare for the November presidential election. Despite a solid job market and easing inflation, Americans are still angry that consumer prices are 19% higher than they were before inflation began in 2021. Many are blaming President Joe Biden, though it's unclear whether they will blame Vice President Kamala Harris as she runs for the presidency.

Recently, higher unemployment numbers finally seemed to be taking their toll. Employers added just 114,000 jobs in July, well below the January-June average of nearly 218,000. The unemployment rate rose for the fourth consecutive month in July, but remains low at 4.3%.

Earlier this week, the U.S. Department of Labor reported that the U.S. economy added 818,000 fewer jobs from April 2023 to March of this year than originally reported. The revised total reinforces the notion that the labor market is steadily slowing and likely supports the Federal Reserve's plan to begin cutting interest rates soon.

The Labor Department estimated that job growth averaged 174,000 per month in the year through March – a decline of 68,000 per month from the 242,000 originally reported. The revisions released Wednesday were preliminary; final numbers are due to be released in February next year.

In addition, the number of monthly job vacancies has been steadily declining since its record high of 12.2 million in March 2022. In June, it fell to 8.2 million.

As signs of an economic slowdown mount and inflation continues to approach its two percent target, the Fed is expected to begin cutting interest rates at its next meeting in September.