- U.S. unemployment claims rose by 6,000 last week due to disruptions from Hurricane Helene and strikes at Boeing and ports.
- The hurricane and strikes are expected to cause temporary layoffs and muddy the labor market view.
- The U.S. central bank cut its benchmark interest rate by 50 basis points in response to the growing risks to the labor market.
- The future of the U.S. labor market depends on the resolution of these issues and the broader economic environment.
The U.S. Labor Department recently reported a slight increase in the number of Americans filing new applications for unemployment benefits. The figures rose by 6,000 last week to a seasonally adjusted 225,000 for the week ending September 28. This increase was slightly higher than the forecast of 220,000 claims predicted by economists polled by Reuters.
The labor market, which has been stable and anchored by low layoffs, is expected to face temporary disruptions due to the aftermath of Hurricane Helene and strikes at Boeing and ports. Hurricane Helene wreaked havoc in the U.S. Southeast, causing significant damage in North Carolina, South Carolina, Georgia, Florida, Tennessee, and Virginia.
The hurricane claimed at least 162 lives across these six states, destroyed homes and infrastructure, leading to a recovery process that Homeland Security Secretary Alejandro Mayorkas described as a multibillion-dollar undertaking that would span years.
In addition to the hurricane's impact, work stoppages by about 30,000 machinists at Boeing and 45,000 dockworkers at the U.S. East Coast and Gulf Coast ports are expected to muddy the labor market view. Although striking workers are not eligible for unemployment benefits, their industrial action is likely to ripple through the supply chain and other businesses dependent on Boeing and ports, causing temporary layoffs.
Impact of Strikes and Hurricane on Labor Market
Boeing has announced temporary furloughs of tens of thousands of employees, including a significant number of U.S.-based executives, managers, and employees. The labor market slowdown is being driven by cooler hiring following 525 basis points worth of rate hikes from the Federal Reserve in 2022 and 2023 to combat inflation.
In response to the growing risks to the labor market, the U.S. central bank last month cut its benchmark interest rate by an unusually large 50 basis points to the 4.75%-5.00% range. This was the first reduction in borrowing costs since 2020, and the Fed is expected to cut rates again in November and December.
The claims data have no bearing on September's employment report as they fall outside the survey week. According to a Reuters survey, nonfarm payrolls likely increased by 140,000 last month after rising by 142,000 in August. Job gains averaged 202,000 per month over the past year.
Future Projections and Unemployment Rate
However, if the Boeing and ports strikes continue beyond the following week, they could depress October's payrolls on the eve of the Nov. 5 presidential election. The unemployment rate is forecast to be unchanged at 4.2% in September. It has increased from 3.4% in April 2023 as a surge in immigration boosted labor supply.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 1,000 to a seasonally adjusted 1.826 million during the week ending Sept. 21, the claims report showed. The so-called continuing claims have settled down after scaling more than 2-1/2-year highs in July following policy changes in Minnesota that allowed non-teaching staff in the state to file for jobless aid during the summer school holidays.
However, the Federal Reserve's actions to support the labor market and the resilience of the U.S. economy suggest that these disruptions may be temporary. The labor market's future trajectory will depend on the resolution of these issues and the broader economic environment.
