The number of Americans filing new applications for unemployment benefits fell last week, but stayed at levels consistent with a further loss of labor market momentum in June and softening economic activity.
The report from the Labor Department on Wednesday showed widespread layoffs in the prior week, which had boosted claims to an eight-month high. Though some technical factors accounted for the elevation in claims, layoffs have risen this year, with economists saying President Donald Trump's broad tariffs had created a challenging economic environment for businesses.
Those challenges were also evident in other data showing permits for future construction of single-family housing dropped to a two-year low in May as builders grappled with higher costs from duties on materials, including lumber, steel and aluminum.
Higher borrowing costs as the Federal Reserve responded to the heightened economic uncertainty from tariffs by pausing its interest rate cutting cycle have weighed on demand for homes, resulting in excess inventory of unsold houses on the market.
Fed officials at the end of a two-day policy meeting later on Wednesday were expected to leave the U.S. central bank's benchmark overnight interest rate in the 4.25%-4.50% range, where it has been since December, as it also monitored the economic fallout from the conflict between Israel and Iran.
"Even though claims remain low by historical standards, we can no longer deny that there is some upward movement toward levels that would support our assessment of an economy slowing into a contraction," said Carl Weinberg, chief economist at High Frequency Economics. "It is time, now, to say that."
Initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 245,000 for the week ended June 14, the Labor Department said. Data for the prior week was revised to show 2,000 more applications received than previously reported, lifting claims for that week to the highest since October.
Economists polled by Reuters had forecast 245,000 claims for the latest week. The report was released a day early because of the Juneteenth National Independence Day holiday on Thursday.
Layoffs were reported in the prior week across several states in the transportation and warehousing, accommodation and food services, healthcare and social assistance, agriculture, construction and manufacturing industries as well as in wholesale, retail trade, administrative, professional, arts, entertainment, and recreation industries.
Claims rose in Minnesota in the prior week as non-teaching staff filed for benefits at the start of summer school holidays. Filings in the state increased further last week. There were also rises in applications in Pennsylvania and Oregon.
The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of June's employment report. Claims increased between the May and June survey weeks.
Historically low layoffs have accounted for much of the labor market stability, with the hiring side of the equation tepid amid hesitancy by employers to increase headcount because of the unsettled economic environment. Nonfarm payrolls increased by 139,000 jobs in May, compared with a 193,000 gain a year ago.
Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, could shed more light on the state of the labor market in June.
The so-called continuing claims dropped 6,000 to a still-high seasonally adjusted 1.945 million during the week ending June 7. Recently laid-off workers are struggling to find work.
The dollar fell against a basket of currencies. U.S. Treasury yields eased.
HOUSING SUBDUED
A separate report from the Commerce Department's Census Bureau showed permits for future construction of single-family housing dropped 2.7% to a seasonally adjusted annual rate of 898,000 units in May, the lowest level since April 2023.
Higher borrowing costs have sidelined potential buyers, boosting the supply of new single-family homes on the market to levels last seen in late 2007. That has left builders with little incentive to break ground on new housing projects.
A National Association of Home Builders survey on Tuesday showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June. The NAHB reported an increase in the share of builders cutting prices to lure buyers and reduce inventory. It forecast a drop in single-family starts this year.
Permits for the volatile multi-family housing segment, buildings with five units or more, rose 1.4% to a rate of 444,000 units in May. Overall building permits decreased 2.0% to a rate of 1.393 million units, the lowest level since June 2020.
Single-family housing starts, which account for the bulk of homebuilding, gained 0.4% to 924,000 units last month. Starts for multi-family housing units slumped 30.4% to a rate of 316,000 units. Overall housing starts plunged 9.8% to a rate of 1.256 million units, the lowest level in five years.
Residential investment, which includes homebuilding, contracted slightly in the first quarter after rebounding in 2024 following steep declines in the prior two years caused by a surge in mortgage rates.
"We appear on course for a substantial decline in real activity in the current quarter and perhaps further weakness in the summer," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
