Signal or Noise?

• Initial claims for unemployment insurance rose slightly in the week ending June 29, and have been increasing in the first half of the year. 

• Continuing claims for unemployment insurance hit their highest level since late 2021 in the week ending June 22.

• The labor market remains strong, but hiring is slowing. 

• PNC is forecasting job gains of 225,000 for June, with a slight decline in the unemployment rate to 3.9%. 

• The labor market will soften modestly over the next year, with smaller job gains and a slightly higher unemployment rate.

Initial claims for unemployment insurance rose by 4,000 in the week ending June 29 to 238,000. Claims for the prior week were revised higher by 1,000 to 234,000. The four-week moving average of initial claims, which smooths out some of the volatility, rose to 238,500 in the week ending June 29, up by 2,250 from the prior week (after revisions). 

Initial claims have moved modestly higher in 2024 after starting the year at a historically low 200,000. Over the past couple of years initial claims have risen and fallen, and there was a similar increase in the first half of 2023, which was followed by an unwinding in the second half of last year. The labor market has remained very strong this year even as initial claims have risen somewhat, with average monthly job gains of around 250,000 over the past three months. It could be that initial claims are signaling a slowing in job growth that will show up later this year, or it could be that the seasonal adjustment process has not fully captured the dynamics of the post-pandemic labor market and the increase so far this year is a mirage. 

Continuing claims for unemployment insurance rose by 26,000 in the week ending June 22 to 1.858 million; this is the highest level for continuing claims since November 2021, when the economy was still healing from the pandemic. Claims for the prior week were revised lower by 7,000 to 1.832 million. The four-week moving average of continuing claims was revised 1.831 million, up by 17,000 from the prior week. This is the highest level for the four-week average since December 2021. 

The message from continuing claims is clearer. They are up from their levels in the second half of 2022 and all of 2023. Although the labor market is historically stronger, it is taking somewhat longer for unemployed workers to find jobs. This is consistent with the May Job Openings and Labor Turnover Survey, or JOLTS report. The hiring rate has been between 3.5% and 3.7% in 2024, down from around 4.5% in the second half of 2021. But layoffs remain extremely low on an historical basis.

PNC expects job gains of 225,000 for June when the Bureau of Labor Statistics releases the monthly Employment Situation report on Friday. The unemployment rate is expected to fall to 3.9% in June from 4.0% in May. The unemployment rate had been below 4% for 27 months before it hit that level in May, the longest such stretch since the late 1960s. 

The labor market is still historically strong, but not quite as strong as it was in 2022 and early 2023. Job growth has eased and the unemployment rate is slightly higher than it was in early 2023, when it hit 3.4% for a couple of months. PNC expects a further easing in the labor market through the rest of this year as high interest rates continue to weigh on the economy. PNC is forecasting monthly job growth to slow to around 100,000 by early 2025, and the unemployment rate will increase somewhat over the next year, to about 4.3%.