• The U.S. labor market shows resilience as new unemployment applications fall to a seven-month low.
• Despite disruptions from hurricanes and strikes, layoffs remain low, softening the impact on the labor market.
• Nonfarm payrolls increased by 12,000 jobs in October, the smallest gain since December 2020.
• The Federal Reserve may cut interest rates for a third time next month to stimulate the economy.

The U.S. labor market is demonstrating resilience, with the number of Americans filing new applications for unemployment benefits falling to a seven-month low. This suggests a likely rebound in job growth in November, following a slowdown in the previous month due to hurricanes and strikes. However, the process of finding new work for the unemployed is taking longer, with unemployment rolls swelling to levels last seen in late 2021.

Initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 213,000 for the week ended Nov. 16, the lowest reading since April. This figure was lower than the 220,000 claims forecasted by economists. The data included the Veterans Day holiday, which could have injected some volatility. Unadjusted claims decreased 17,750 to 213,035 last week. Filings in California dropped 4,657, almost reversing the prior week's 5,906 jump.

There were also notable declines in applications in New Jersey, Ohio, Georgia, Texas, and Indiana. Filings had surged in New Jersey and Texas in the prior week, blamed on layoffs in the educational services industry as well as the healthcare and social assistance sector.

Labor Market Impact of Disruptions

Despite disruptions caused by Hurricanes Helene and Milton as well as strikes by factory workers at Boeing and another aerospace company, layoffs have remained low. This is softening the hit on the labor market from sluggish hiring. The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of November's employment report. Claims fell considerably between the October and November survey weeks.

Government data confirmed that Helene, Milton, and the aerospace strikes had accounted for much of the sharp slowdown in job growth in October. The state employment and unemployment report also showed the labor market steadily slowing. Economists estimated that the strikes and storms probably subtracted between 100,000 and 125,000 jobs from payrolls last month.

Nonfarm payrolls increased by a scant 12,000 jobs in October, the smallest gain since December 2020, after rising by 223,000 in September. The Boeing strike ended early this month after workers accepted a new contract, while rebuilding is underway in the areas devastated by the hurricanes. That creates a base of at least 100,000 jobs for November's payrolls.

Federal Reserve's Response to Labor Market Trends

Data next week on unemployment rolls could offer more clarity on the state of the labor market in November. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 36,000 to a seasonally adjusted 1.908 million during the week ending Nov. 9. The so-called continuing claims have been boosted by Boeing-related furloughs and the hurricanes.

The employment report for November could determine if the Fed cuts rates again in December. The U.S. central bank trimmed rates by 25 basis points earlier this month, lowering its benchmark overnight interest rate to the 4.50%-4.75% range. The Fed embarked on its policy easing cycle with an unusually large half-percentage-point rate cut in September, its first reduction in borrowing costs since 2020. It hiked rates by 525 basis points in 2022 and 2023 to curb a surge in inflation.