Jobless claims dip again despite tech layoffs as resilient labor market gives Fed room to fight inflation

U.S. jobless claims fall as resilient labor market gives Fed room to fight inflation
The number of Americans filing for unemployment benefits declined last week, underscoring the resilience of the U.S. labor market even as inflation pressures intensify because of the ongoing conflict involving Iran. Economists say the stable employment picture is giving the Federal Reserve more flexibility to focus on rising prices rather than rushing to support growth with interest-rate cuts.

Initial claims for state unemployment benefits slipped by 3,000 to a seasonally adjusted 209,000 for the week ended May 16, according to the Labor Department. The figure came in slightly below economists’ expectations of 210,000 and reinforced the view that layoffs remain historically low despite broader economic uncertainty.

Weekly jobless claims edge lower

The latest unemployment claims data showed that layoffs continue to remain subdued across much of the economy. Initial claims declined to 209,000 from a revised 212,000 the previous week, while the four-week moving average fell to 202,500, the lowest level since 2024.

Economists noted that claims levels remain well below the historical norm seen before the pandemic. Actual unadjusted initial claims totaled 185,625, down 3.0% from the prior week and below the comparable period in 2025, when claims stood at 200,637.

The data suggested that employers are still reluctant to cut workers despite mounting concerns over inflation, geopolitical tensions and slowing demand in some sectors.

Labor market remains in a “low-hire, low-fire” pattern

Analysts say the U.S. labor market continues to operate in what many economists describe as a “low-hire, low-fire” environment. Hiring activity has cooled compared with the post-pandemic surge, but layoffs have not accelerated significantly.

High-profile job cuts announced by companies including Meta Platforms, Starbucks, LinkedIn and Walmart have not yet translated into a broad-based increase in unemployment claims.

“Tighter fraud controls and the concentration of layoffs in higher-paying tech jobs may be dampening jobless-claims activity,” Bloomberg Economist Eliza Winger said. “That suggests the unusually low recent claims prints — well below the 335k average in the decade before the pandemic — may be painting an overly favorable picture of labor-market resilience.”

Federal Reserve gains more room to hold rates steady

The relatively stable labor market is strengthening expectations that the Federal Reserve will leave interest rates unchanged for an extended period. Financial markets currently expect the Fed to maintain its benchmark overnight interest rate in the 3.50%-3.75% range into next year.

Minutes from the Fed’s April 28-29 meeting showed policymakers becoming increasingly concerned that inflation tied to the Iran conflict could persist longer than expected. Several officials suggested the central bank may eventually need to prepare for another rate hike if price pressures continue to build.

Policymakers “generally expected labor market conditions to remain stable in the near term,” the minutes showed, though most judged “that risks to the employment side” of the Fed’s “dual mandate were tilted to the downside.”

Geopolitical conflict intensifies inflation concerns

The conflict in the Middle East has become a growing source of economic anxiety for policymakers and investors. Disruptions to shipping through the Strait of Hormuz have driven oil prices sharply higher and strained global supply chains.

The impact has extended beyond energy markets, contributing to rising costs for fertilizers, petrochemicals, aluminum and consumer goods. Economists warn that prolonged supply disruptions could further accelerate inflation and reduce household purchasing power.

“We still can’t rule out some spillover effects from the war and the spike in oil prices on to the labor market, which we have always expected would come with a lag,” said Matthew Martin, a senior U.S. economist at Oxford Economics. “But for now, we think the labor market is showing enough stability to allow the Fed to feel comfortable keeping policy steady.”

Businesses report rising costs and weaker demand

Fresh survey data from S&P Global suggested that businesses are increasingly feeling pressure from higher costs and slowing demand. Private-sector employment fell to a 21-month low in May, according to the survey, particularly in the services sector.

Companies cited “growing concerns over rising costs and deteriorating demand conditions,” while measures of input prices surged to their highest levels since November 2022.

Businesses also reported passing along higher costs to consumers, with S&P Global pointing to “growing supply scarcities” across multiple industries. Economists fear that persistent inflation could eventually weaken consumer spending and economic growth.

Continuing claims show hiring is still slowing. Although layoffs remain low, continuing unemployment claims increased modestly, indicating that unemployed workers may be taking longer to find new jobs.

The number of people receiving benefits after an initial week of aid rose by 6,000 to 1.782 million during the week ended May 9. Continuing claims are often viewed as a proxy for hiring conditions because they reflect how quickly displaced workers are able to secure new employment.

The four-week moving average for continuing claims declined to 1.773 million, suggesting labor market conditions remain relatively stable overall despite softer hiring trends.

Payroll growth cools from earlier pace

The weekly claims figures covered the same period used by the government to survey businesses for May’s nonfarm payrolls report. Economists are closely monitoring the labor market for signs of a sharper slowdown after payroll growth moderated in recent months.

Payrolls increased by 115,000 jobs in April after rising by 185,000 in March, reflecting slower but still positive employment growth.

Federal Reserve officials have described recent labor market data as generally stable, though they continue to watch for signs that higher energy prices and slowing economic activity could eventually weaken hiring.

Housing market shows growing signs of strain

While the labor market remains resilient, the housing sector is facing mounting pressure from rising borrowing costs and higher construction expenses.

Single-family housing starts dropped 9.0% in April to an annualized rate of 930,000 units, with declines recorded across all four major U.S. regions. Permits for future single-family construction also fell 2.6%, signaling additional weakness ahead.

Economists say elevated mortgage rates, higher material costs and tariff-related price increases are making homebuilding more difficult and reducing affordability for buyers.

“Americans looking to buy a new single-family home of their own will remain disappointed,” said Christopher Rupkey, chief economist at FWDBONDS. “Inflation and financing is pushing building costs sharply higher and that will make new homes even more unaffordable if you could find one.”

Mortgage rates climb as Treasury yields rise. Higher Treasury yields are adding to the pressure on the housing market. The benchmark 10-year Treasury yield recently touched its highest level since January 2025, pushing mortgage rates upward.

According to Freddie Mac, the average 30-year fixed mortgage rate climbed to 6.51%, the highest level in nine months. Mortgage rates were closer to 5.98% at the end of February before the Iran conflict intensified.

Higher financing costs are discouraging both buyers and builders, contributing to weaker residential investment and slowing activity across the housing sector.

Certain states continue seeing elevated unemployment rates

Although national unemployment claims remain low, several states continue to report relatively elevated insured unemployment rates.

The highest insured unemployment rates for the week ending May 2 were recorded in New Jersey at 2.2%, Washington at 2.1%, and California and Massachusetts at 2.0%.

Florida posted the largest increase in initial claims, rising by 2,591 applications, followed by Texas, Kentucky, Pennsylvania and New York. Meanwhile, California saw the largest weekly decline in claims, falling by 1,232.

The regional disparities highlight how labor market conditions continue to vary across industries and states despite overall national stability.

Economists warn labor market resilience may not last forever

Despite encouraging claims data, economists caution that the labor market could weaken later this year if inflation remains elevated and economic growth slows further.

Residential investment has now contracted for five straight quarters, and some economists have already downgraded their economic growth forecasts. Economists at Goldman Sachs lowered their estimate for second-quarter U.S. GDP growth to a 2.0% annualized pace.

For now, however, the labor market continues to provide an important buffer for the broader economy. Stable employment levels are helping support consumer spending even as inflation, geopolitical risks and higher borrowing costs create growing uncertainty for businesses and households alike.

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