The number of Americans filing claims for unemployment benefits increased more than expected last week, touching their highest level in four months, but the underlying trend remained consistent with a stable labor market.
Economists shrugged off the rise in weekly jobless claims reported by the Labor Department on Thursday as volatility related to last Monday’s Memorial Day holiday. Claims tend to rise around public holidays. They said there were no signs yet the Middle East conflict was having a noticeable impact on the labor market, though uncertainty was growing.
“The big picture remains that the trend in both initial and continuing claims still is very subdued,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. “It would be unwise, however, to conclude that all is fine and well with the labor market simply because claims are low. Low fire, low hire remains an apt description of labor market conditions, and only around one of four of those unemployed make a claim.”
Initial claims for state unemployment benefits rose 13,000 to a seasonally adjusted 225,000 for the week ended May 30, the highest level since the first week of February. Economists polled by Reuters had forecast 213,000 claims for the latest week. The four-week moving average of claims, which irons out week-to-week volatility, increased only 6,500 to 214,750.
Last week’s rise pushed claims to the upper end of their 190,000-230,000 range for this year. Applications could remain higher in the weeks ahead as the school year ends.
“Some states allow school workers who are off for the summer to claim unemployment benefits and that can lead to a rise in headline claims that isn’t always captured by the seasonal factors,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Seasonal factors are the model used by the government to strip out seasonal fluctuations from the data.
Layoffs remain low by historical standards, despite high-profile job cuts by technology firms related to the adoption of artificial intelligence. U.S.-based employers announced 97,006 job cuts in May, about 39% of them in the technology sector, a separate report from global outplacement firm Challenger, Gray and Christmas showed on Thursday. That was up 16% from April.
Still, planned job cuts rose only 3% compared to the same period last year. Though employers have not responded with mass layoffs to rising shortages and inflation stemming from the U.S.-Israeli war with Iran, now in its fourth month, economists said that could change, the longer the conflict drags on.
The Federal Reserve’s Beige Book report on Wednesday said employment showed “little to no change” in May, and that “most districts described a low-hire, low-fire environment.” It added that “hiring remained selective and primarily focused on critical roles or attrition replacement.”
For now, low layoffs are anchoring the labor market. The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, fell 8,000 to a seasonally adjusted 1.777 million during the week ended May 23, the claims report showed.
Labor Market Remains Stable
The claims data have no bearing on the closely watched employment report for May, due to be released on Friday, as they fall outside the survey period.
Nonfarm payrolls likely rose by 85,000 jobs in May after rising 115,000 in April, a Reuters survey of economists predicted. The unemployment rate is forecast unchanged at 4.3%.
The Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday showed hiring decreased and layoffs fell in April, suggesting the increase in payrolls that month was due to lower layoffs. A stable labor market allows the Federal Reserve to focus on inflation. Financial markets expect the U.S. central bank to keep its benchmark overnight interest rate in the 3.50%-3.75% range into 2027.
U.S. stocks opened lower. The dollar slipped against a basket of currencies. U.S. Treasury yields fell.
A third report from the Labor Department’s Bureau of Labor Statistics showed worker productivity growth slowed faster than initially thought in the first quarter, but the underlying trend remained strong and a boost is expected from businesses adopting artificial intelligence for many roles.
Nonfarm productivity, which measures hourly output per worker, increased at a downwardly revised 0.3% annualized rate last quarter. That was the slowest since the first quarter of 2025. Productivity was previously estimated to have risen at a 0.8% pace last quarter. Economists had expected productivity growth would be revised down to a 0.5% pace.
Productivity grew at a 2.8% rate from a year ago, instead of the 2.9% pace estimated last month. It has grown at a 2.1% rate from the fourth quarter of 2019 through the first quarter of 2026. The softness in the first quarter was flagged by last week’s downgrade to gross domestic product growth to a 1.6% rate from the previously reported 2.0% pace. Productivity grew at an unrevised 1.6% rate in the October-December quarter.
Economists believe the rising integration of AI will boost productivity and rein in labor costs.
Unit labor costs – the price of labor per single unit of output – increased at a 1.8% rate last quarter. That was a downward revision from the 2.3% pace reported last month. Fourth-quarter growth in unit labor costs was lowered to a 2.1% rate from the previously reported 4.6% pace.
Economists had expected unit labor costs to increase at a 2.5% rate last quarter. They grew at a 0.5% rate from a year ago. Hourly compensation increased at a 2.1% rate last quarter and grew at a 3.3% pace from a year ago.
“Normally, unit labor costs would rise when productivity is revised lower,” said Carl Weinberg, chief economist at High Frequency Economics. “Obviously, there is a basis effect at work here.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci )
