The number of Americans applying for unemployment benefits rose again last week, the week ended February 23, after an exceedingly volatile month which saw initial claims hit a one-year high on average at one point.

Continuing claims have hit a 10-month high, leading to concerns of a labor market slowdown despite strong performance compared to historical employment levels. Initial claims rose by 8,000 to 225,000 vs 220,000 – 224,000 expected.

Initial Claims: A Key Measure of Layoffs

Initial jobless claims rose by 8,000 after dipping the previous week from a one-year high which stunned the markets. The four-week moving average for last week actually dropped by 7,000 positions – monthly averages are less volatile and seen as a more stable and reliable indicator, but in this case the average was thrown off by the jump in the monthly average in early February, defying expectations that the figure would shrink following the end of the partial US government shutdown.

While the government insisted that the shutdown would have no effect on employment figures as federal employees are compensated through a separate benefits scheme, many private contractors were also out of work during the 35-day shutdown which was the longest in US history, likely impacting the unemployment claims data.

Analysts also believe that data may have been skewed due to the after-effects of temporary holiday season workers who have a high rate of staff turnover.

Continuing Claims Also Rising – Warning Signals Incoming

While the monthly average has crept down from an unexpected yearly high, the initial jobless and continuing jobless claims have risen to a 10-month high, a much more concerning indicator than initial claims for many analysts. 1.805 million Americans continued to receive benefits after an initial week of claims last week, higher than the expected 1.737 million. Last week’s figures were also revised upward.

The combination of the two does not bode well for the labor market, and while it remains at historically high levels of performance, it could be that a slowdown is finally taking place following a very strong year for US labor with the lowest rate of unemployment in decades.

US Initial Jobless Claims seasonally-adjusted has been steadily falling since '09, but the trend "may" be over. Looking at the non-seasonally-adjusted numbers, we're starting to see some higher YoY numbers, which will lead to higher SA numbers, "if" this continues. pic.twitter.com/ym6deF3bk1 — Randy Woodward (@TheBondFreak) February 28, 2019

Unsustainable Growth

It could be that the rate of performance seen in the labor market has simply been unsustainable, with companies opening more positions than there are skilled workers to fill them. Is it the end of the world if the labor market cools off a little? While there’s nothing inherently negative about last week’s figures when viewed in isolation, they paint a foreboding picture in the context of previous weeks and of the current global economic situation.

With a possible escalation in the Chinese trade war about to occur, a general global economic slowdown in action, and multiple other areas of the US economy underperforming, the health of the labor market is absolutely vital. The weakness in areas like manufacturing and housing has been propped up by the strength of US labor, and a house of cards effect is the last thing the economy needs in such uncertain times.

While it’s far too soon to doomsay the labor market, jobless claims are an increasingly important indicator for traders, market analysts, and economists. A recent Reuters poll indicated that the likelihood of a worldwide recession has increased recently, and one can only hope that the Fed will deliver, as promised, the best policies possible to stimulate both labor and economic growth moving forward.