By Lucia Mutikani
WASHINGTON, Feb 5 (Reuters) – The number of Americans filing new applications for unemployment benefits increased more than expected last week amid winter storms, and while job openings fell to a more than five-year low in December, the decline was concentrated in a single industry.
Economists said the reports from the Labor Department on Thursday did not suggest a material shift in the labor market, which many described as being stuck in a holding pattern due to lingering uncertainty from import tariffs and the growing popularity of artificial intelligence that has left businesses hesitant to hire more workers. Layoffs stayed low in December.
The data were published ahead of the release next Wednesday of the employment report for January, which was delayed by a three-day shutdown of the federal government that ended on Tuesday. The closely watched employment report is expected to confirm Federal Reserve Chair Jerome Powell’s assessment of labor market conditions as “stabilizing.”
“More than anything, we see the data as reflective of ongoing judicious hiring practices,” said Oren Klachkin, financial markets economist at Nationwide. “We are near, or at the trough for employment growth, and look for a favorable fiscal and monetary policy mix … to re-accelerate hiring and keep layoffs low.”
Initial claims for state unemployment benefits jumped 22,000, the largest increase since early December, to a seasonally adjusted 231,000 for the week ended January 31.
Economists polled by Reuters had forecast 212,000 claims for the latest week. Heavy snow and freezing temperatures blanketed large portions of the country in late January, which could have left some people unemployed temporarily. Unadjusted claims shot up in Pennsylvania, New York and New Jersey. There were notable rises in Illinois, Missouri, Ohio and Wisconsin.
Claims are also likely rising as the volatility during the holiday season and at the turn of the year washes out of the data. The four-week moving average of claims, considered a better measure of labor market conditions as it strips out week-to-week volatility from the data, rose 6,000 to 212,250.
“There could continue to be some distortions to claims in the near term due to inclement weather,” said Gisela Young, an economist at Citigroup.
The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 25,000 to a seasonally adjusted 1.844 million during the week ended January 24, the claims report showed. The so-called continuing claims had dropped for three straight weeks.
Most economists cited the same seasonal issues that impacted initial claims data and were dismissive of fears of labor market deterioration expressed by a minority.
Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury yields fell.
HINTS OF AI IN DROPPING JOB VACANCIES
A separate report from the Labor Department’s Bureau of Labor Statistics showed job openings, a measure of labor demand, decreased by 386,000 to 6.542 million by the last day of December, the lowest level since September 2020. Economists had forecast 7.20 million unfilled jobs.
The Job Openings and Labor Turnover Survey, or JOLTS report, showed 6.928 million vacancies in November, down from the previously reported 7.146 million. There were 0.87 job openings for every unemployed person in December compared to 0.89 in November.
“Openings remain higher than at any time in the past, except during the COVID reopening and the months just before the pandemic,” said Carl Weinberg, chief economist at High Frequency Economics. “That observation will not prevent market participants from getting antsy about the economy.”
Job openings fell across all business sizes, but the professional and business services sector accounted for two-thirds of the drop, with vacancies there decreasing by 257,000. Some economists attributed the third straight monthly drop in unfilled positions in professional and business services to AI.
“This is potentially suggesting that AI is persuading a rising proportion of businesses to pause on new hiring,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Retail sector job openings dropped by 195,000. There were also fewer open positions in the financial activities, healthcare and social assistance sectors as well as the arts, entertainment and recreation industry.
The job openings rate fell to 3.9%, the lowest level since March 2020, from 4.2% in November.
Hiring increased by 172,000 positions to a still-low 5.293 million, lifted by the healthcare and social assistance sector as well as the accommodation and food services industry. But hiring slumped in the professional and business services sector. The overall hires rate climbed to 3.3% from 3.2% in November.
Economists’ estimates for nonfarm payrolls are currently converging around an increase of 70,000 jobs. Payrolls rose by 50,000 jobs in December.
With hiring generally lackluster, workers are mostly staying in their current jobs. The quits rate, viewed as a measure of labor market confidence, was unchanged at 2.0%, though resignations rose at retailers. In contrast, fewer professional and business services sector workers quit in December.
The layoffs rate was unchanged at 1.1%. Economists say labor market stability could encourage the Fed to keep interest rates unchanged through the first half of the year. The U.S. central bank last week left its benchmark overnight interest rate in the 3.50%-3.75% range.
“The data this morning were suggestive but far from conclusive in pointing to a softening of the labor market,” said John Ryding, chief economic advisor at Brean Capital. “It is too early to panic about the labor market and look for more rate cuts from the Fed.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
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