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The number of Americans filing new applications for unemployment benefits fell last week, but stayed at levels consistent with a further loss of labor market momentum in June and softening economic activity.
The report from the Labor Department on Wednesday showed widespread layoffs in the prior week, which had boosted claims to an eight-month high. Though some technical factors accounted for the elevation in claims, layoffs have risen this year, with economists saying President Donald Trump’s broad tariffs had created a challenging economic environment for businesses.
Those challenges were also evident in other data showing permits for future construction of single-family housing dropped to a two-year low in May as builders grappled with higher costs from duties on materials, including lumber, steel and aluminum.
Higher borrowing costs as the Federal Reserve responded to the heightened economic uncertainty from tariffs by pausing its interest rate cutting cycle have weighed on demand for homes, resulting in excess inventory of unsold houses.
The U.S. central bank on Wednesday kept its benchmark overnight interest rate in the 4.25%-4.50% range, where it has been since December. Policymakers in new economic projections sketched a modestly stagflationary picture of the economy. They forecast two rate cuts this year.
“Even though claims remain low by historical standards, we can no longer deny that there is some upward movement toward levels that would support our assessment of an economy slowing into a contraction,” said Carl Weinberg, chief economist at High Frequency Economics. “It is time, now, to say that.”
Initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 245,000 for the week ended June 14. Data for the prior week was revised to show 2,000 more applications received than previously reported, lifting claims for that week to the highest since October.
Economists polled by Reuters had forecast 245,000 claims for the latest week. The report was released a day early because of the Juneteenth National Independence Day holiday on Thursday.
Layoffs were reported in the prior week across several states in a range of industries including transportation and warehousing, accommodation and food services, agriculture, construction and manufacturing.
The four-week moving average of claims, which strips out seasonal fluctuations from the data, increased 4,750 to 245,500 last week, the highest level since August 2023. But some economists do not view the labor market as having changed much.
“The increase could be a sign of a slight pickup in job separations,” said Conrad DeQuadros, senior economic advisor at Brean Capital. “However, there appears to be a marked seasonal pattern in the last three years in the seasonally adjusted claims data where claims rise from mid-February through the summer and then retreat later in the year.”
Stocks on Wall Street were trading higher. The dollar fell versus a basket of currencies. U.S. Treasury yields eased.
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Housing Market Shaky
The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of June’s employment report. Claims increased between the May and June survey weeks.
Historically low layoffs have accounted for much of the labor market stability, with the hiring side of the equation tepid amid hesitancy by employers to boost headcount because of the unsettled economic environment. Nonfarm payrolls increased by 139,000 jobs in May, compared with a 193,000 gain a year ago.
Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, could shed more light on the state of the labor market in June.
The so-called continuing claims dropped 6,000 to a still-high seasonally adjusted 1.945 million during the week ending June 7. Recently laid-off workers are struggling to find work.
A separate report from the Commerce Department’s Census Bureau showed permits for future construction of single-family housing dropped 2.7% to a seasonally adjusted annual rate of 898,000 units in May, the lowest level since April 2023.
Higher borrowing costs have sidelined potential buyers, boosting the supply of new single-family homes on the market to levels last seen in late 2007. That has left builders with little incentive to break ground on new housing projects.
An immigration crackdown that has seen raids at construction sites could lead to labor shortages, compounding problems for builders, economists said.
A National Association of Home Builders survey on Tuesday showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June.
Permits for the volatile multi-family housing segment, buildings with five units or more, rose 1.4% to a rate of 444,000 units in May. Overall building permits fell 2.0% to a rate of 1.393 million units, the lowest level since June 2020.
Single-family housing starts, which account for the bulk of homebuilding, gained 0.4% to 924,000 units last month. Starts for multi-family housing units slumped 30.4% to a rate of 316,000 units. Overall housing starts plunged 9.8% to a rate of 1.256 million units, the lowest level in five years.
The completions rate for single-family houses surged 8.1% to 1.027 million units. The inventory of housing under construction decreased 1.3% to a rate of 623,000 units, the lowest level since February 2021.
“We don’t expect an imminent collapse in the housing market,” said Matthew Martin, a senior U.S. economist at Oxford Economics. “However, uncertainty will keep construction depressed the remainder of the year.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Diane Craft)
