U.S. Jobless Claims Fall Below Estimates, but Unemployment Benefits Rise

US Jobless Claims Unexpectedly Drop

The number of Americans filing for unemployment aid fell unexpectedly last week, signaling some strength in the labor market. However, with more people collecting benefits in mid-October, there is a looming risk of a higher unemployment rate for October. The decline in claims came as disruptions from Hurricane Helene eased, offsetting a spike in filings caused by Hurricane Milton.

Weekly Jobless Claims Decline

For the week ending October 19, initial jobless claims fell by 15,000 to a seasonally adjusted 227,000, according to the U.S. Labor Department. This drop was sharper than economists’ forecasts of 242,000, showing better-than-expected labor market resilience. However, ongoing natural disasters like Hurricane Milton complicate efforts to get a clear reading on labor trends.

Federal Reserve Observations

The Federal Reserve’s Beige Book, released a day earlier, noted slight employment growth in early October, with half of the districts reporting modest or no change. The report also highlighted limited layoffs and stable worker turnover. However, hiring efforts have slowed, with companies primarily seeking to replace workers rather than expand their workforce.

Boeing Strike Adds Uncertainty

A significant factor clouding labor market data is the ongoing strike by 33,000 machinists at Boeing, which has caused a ripple effect throughout the company’s supply chain. The strike could drag down overall employment numbers, as both Boeing’s striking workers and those affected in its supply chain add volatility to job market metrics.

On Wednesday, Boeing workers voted to reject a proposed new contract, which would have included a 35% pay raise over four years and improved 401(k) contributions. This rejection prolongs the strike, further disrupting labor data.

Continuing Claims Rise

While initial claims dropped, the number of people receiving unemployment benefits after their first week, a key indicator of hiring activity, increased by 28,000 to 1.897 million for the week ending October 12. This rise in continuing claims suggests that more workers are staying unemployed longer, raising concerns for the broader labor market.

Market Outlook: Possible Rate Cuts Ahead

The slight uptick in continuing claims coincides with the government’s data collection for October’s unemployment rate, which could climb from September’s 4.1%. This follows an earlier rise in the jobless rate from 3.4% in April to 4.3% in July, which led the Federal Reserve to slash interest rates by 50 basis points last month. With inflation pressures easing, the Fed is expected to cut rates further by 25 basis points in November, aiming to provide more economic support as uncertainties in the labor market persist.

Cautious Outlook for Labor Market

The increase in continuing claims and unresolved labor disruptions, especially the Boeing strike, suggest a cautious outlook for the labor market. While the decline in initial claims offers some signs of resilience, the broader picture is less optimistic.

A potential rise in the unemployment rate could signal a cooling economy, which would likely reinforce expectations for the Federal Reserve to ease monetary policy further. With inflationary pressures under control, the Fed is expected to cut rates by 25 basis points next month, aiming to stabilize the economy amid ongoing labor market challenges.