US weekly unemployment claims hit 10-month high; producer prices fall

The number of Americans filing new claims for unemployment benefits increased to a 10-month high last week, suggesting the labor market was losing momentum and keeping hopes of a September interest rate cut from the Federal Reserve alive.

That was reinforced by other data from the Labor Department on Thursday showing producer prices unexpectedly falling in May.
 

The largest decline in prices at the factory gate since last October followed news on Wednesday that consumer prices were unchanged in May. The U.S. central bank on Wednesday kept its benchmark overnight interest rate in the current 5.25%-5.50% range, where it has been since last July.
 

Fed officials pushed out the start of rate cuts to perhaps as late as December, with policymakers projecting only a single quarter-percentage-point reduction for this year. Economists, however, remained optimistic that the Fed would reduce borrowing costs twice this year, starting in September.
 

"These data nudge the door a little wider open for the Fed to start cutting interest rates later this year," said Bill Adams, chief economist at Comerica Bank.
 

Initial claims for state unemployment benefits jumped 13,000 to a seasonally adjusted 242,000 for the week ended June 8, the highest level since last August, the Labor Department said.
 

Economists polled by Reuters had forecast 225,000 claims in the latest week. It was the third straight weekly rise in claims, leading some economists to believe that cracks were forming in the labor market. Others blamed the rise on lingering volatility related to the Memorial Day holiday in late May.
 

Unadjusted claims shot up 38,530 to 234,707 last week, driven by a 10,311 surge in California. Filings increased 4,342 in Minnesota, building on the prior week's rise, which the state attributed to layoffs in the educational services industry.
 

Pennsylvania also reported an increase of 4,134 applications. Claims in the state had risen in the previous week amid layoffs in transportation and warehousing, manufacturing, administrative, support and waste management as well as remediation services industries.
 

"Initial claims have been drifting up for some time, but the big increase this week leaves the uptrend far harder to dismiss," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
 

"High long-term rates, tight credit conditions and a gradual softening in demand are starting to weigh more heavily on businesses, and on small companies in particular."
 

EASING LABOR MARKET CONDITIONS
 

The Fed has raised its policy rate by 525 basis points since March 2022. The unemployment rate increased to a still relatively low 4% in May for the first time since January 2022, while economic growth slowed considerably in the first quarter.
 

Fed Chair Jerome Powell told reporters on Wednesday that "a broad set of indicators suggests that conditions in the labor market have returned to about where they stood on the eve of the pandemic, relatively tight but not overheated." The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 30,000 to a seasonally adjusted 1.820 million during the week ending June 1, the claims report showed.
 

In a separate report on Thursday, the Labor Department's Bureau of Labor Statistics said the producer price index for final demand decreased 0.2% in April. That was the biggest drop in the PPI since last October and followed an unrevised 0.5% rise in April. Economists had forecast the PPI nudging up 0.1%.
 

Goods prices fell 0.8%, with a 7.1% plunge in wholesale gasoline prices accounting for nearly 60% of the decline. Goods prices rose 0.4% in April. Wholesale food prices dipped 0.1% as the cost of eggs declined. Excluding food and energy, goods prices climbed 0.3% after gaining 0.2% in April.
 

The cost of services was unchanged after accelerating 0.6% in April. In the 12 months through May, the PPI increased 2.2% after rising 2.3% in April.
 

Data on Wednesday showed consumer prices unchanged in May for the first time in nearly two years.

With the CPI and PPI data in hand, economists estimated that the core personal consumption expenditures price index rose 0.1% in May. The core PCE price index, one of the inflation measures tracked by the Fed for monetary policy, gained 0.2% in April.
 

Core inflation is forecast to have increased 2.6% on a year-on-year basis in May after gaining 2.8% in April.