CUS unemployment data flashes red, initial claims hit a three-month high

The US labor market is flashing warning signs. The latest data showed that initial jobless claims rose to 235,000 last week, exceeding expectations of 225,000 and marking the largest increase in nearly three months. Meanwhile, continuing claims climbed to 1.97 million, the highest level since November 2021. These figures paint a picture of a significant slowdown in the labor market, suggesting the job market may be losing momentum.

The current data contrasts sharply with the post-pandemic recovery. Since the US began its recovery from the COVID-19 pandemic, weekly unemployment claims have largely remained within the historically healthy range of 200,000 to 250,000. The market reaction to these data was relatively muted, partly because investors were more focused on the upcoming Jackson Hole meeting and a speech by Federal Reserve Chairman Powell. Following the release of the data, the US dollar index briefly fell by about 8 points, while spot gold briefly rose by about $3. Market expectations for a September rate cut by the Federal Reserve remain around 70%.

Deep-seated employment issues are emerging. The July jobs report already showed signs of a weakening labor market, with U.S. employers adding only 73,000 jobs, well below the 115,000 analysts had forecast. More worryingly, the figures for May and June were revised down to show a loss of 258,000 jobs, and the unemployment rate edged up from 4.1% to 4.2%. The long-term unemployed were particularly affected, with 1.8 million people out of work for more than 27 weeks, representing 25% of all unemployed workers, up from 20% a year ago.

Unemployment showed significant regional disparities. Washington, D.C., had the highest unemployment rate in the country for three consecutive months, reaching 6%. Neighboring Maryland and Virginia also saw rising unemployment rates. By industry, healthcare and social assistance added 73,300 jobs in July, while construction added 2,000. However, manufacturing and government jobs combined fell by 23,000, highlighting the uneven nature of the job market recovery.

Behind these statistics lie countless personal stories of hardship. A 46-year-old former director of user experience for financial services in Florida has submitted 900 resumes since being laid off last September, but has only received one interview. She has been forced to sell her five-bedroom home and faces the risk of losing her health insurance. A 61-year-old software engineer in Idaho feels forced into semi-retirement after submitting 500 resumes without success. These cases reflect the deeper challenges facing the job market.

Many economists believe that the Trump administration's repeated changes in tariffs on foreign trading partners have created uncertainty for employers, making them reluctant to expand hiring. Average US import tariffs have risen to their highest level in a century, and a government report in early August showed that job creation averaged only 35,000 per month over the past three months. Domestic demand growth in the second quarter was the slowest since the fourth quarter of 2022, a combination of factors that exacerbate the labor market's difficulties.

The Federal Reserve faces a complex situation: a significant slowdown in the labor market and persistent inflationary pressures. Policy disagreements within the Federal Reserve are becoming increasingly public. Cleveland Fed President Melissa Hammack has been resolute, stating, "Inflation is currently too high and the trend isn't improving. If the meeting were held tomorrow, I don't see a reason to cut rates." Atlanta Fed President Raphael Bostic, however, has advocated for a "act and wait" strategy, arguing that if the labor market continues to deteriorate, the Fed should consider a preemptive rate cut in September.

Federal Reserve Chairman Powell is about to deliver a speech at the Jackson Hole conference, and the market is closely watching his every word for clues about a September rate cut. Wall Street analysts have lowered the probability of a September rate cut to around 70%. However, regardless of the Fed's decision, difficult times will continue for millions of American job seekers. Whether these early warning signs in the labor market signal a broader economic slowdown will be a key focus for policymakers and markets in the coming weeks.