Key Takeaways:
The US labor market is showing early signs of strain as the Iran conflict pushes gasoline prices above $4.40 a gallon and weighs on hiring.
Initial jobless claims rose to 215,000 last week, exceeding economist forecasts, as the Iran war's economic fallout began to ripple through a labor market that had held steady for months.
"Initial claims are still impressively low, near historic lows," Carl Weinberg, chief economist at High Frequency Economics, said. "The uptick from last week to this week is trivial in a labor market of 159 million workers."
The Labor Department reported Thursday that claims for the week ended May 23 increased by 5,000 from the prior week's revised figure of 210,000, topping the 213,000 consensus estimate from economists surveyed by The Wall Street Journal. The four-week moving average, which smooths weekly volatility, rose by roughly 6,300 to 209,000. Continuing claims, a proxy for the total unemployed population, reached 1.79 million in the week through May 16, up 15,000 from a week earlier.
The data comes as the Iran conflict has sent shockwaves through energy markets. Iran's closure of the Strait of Hormuz disrupted the largest flow of global oil supplies in history, pushing US gasoline prices to an average $4.43 a gallon from $2.98 before the conflict, according to AAA. Higher fuel costs are squeezing household budgets and business margins, threatening to slow the hiring that has kept the unemployment rate at a historically low 4.3%.
Hiring slows even as layoffs stay contained
Despite the low level of layoffs, job creation has weakened considerably. US employers added an average of 76,000 jobs a month from January through April, down from 122,000 a month in 2024 and well below the roughly 400,000 monthly pace from 2021 through 2023 as the economy rebounded from the pandemic. Last year, companies, nonprofits and government agencies added fewer than 10,000 jobs a month — the weakest hiring outside recession years since 2002.
The US now needs fewer jobs to keep unemployment from rising. President Donald Trump's immigration crackdown and ongoing Baby Boomer retirements have lowered the monthly break-even hiring rate to potentially as low as zero, economists estimate. The unemployment rate stood at 4.3% in April and is expected to hold at that level when May data is released.
Eliza Winger of Bloomberg Economics said the data tells a story of resilience, writing that despite fears about AI-driven job displacement and escalating geopolitical tensions, neither force has "had a meaningful impact on weekly unemployment insurance claims activity so far."
The Conference Board's Present Situation Index, based on consumers' assessment of current business and labor market conditions, retreated by 3.2 points to 121.2 this week. The group said perceptions of employment conditions declined slightly, with the labor-market differential — the share of consumers saying jobs are "plentiful" minus the share saying jobs are "hard to get" — ticking down by 0.6 percentage point to 6.9%.
The risk going forward is that the energy shock has yet to fully feed through to the labor market. If gasoline prices remain above $4 a gallon through the summer driving season, consumer spending — the main engine of US economic growth — could weaken further, potentially pushing employers to slow hiring or begin cutting positions. The last time the US faced a comparable energy supply disruption during the 1973 oil embargo, the unemployment rate rose from 4.6% to 8.5% over the following two years. The next test comes with the May jobs report, where continuing claims data collected during the survey week will offer an early signal of any deterioration.
This article is for informational purposes only and does not constitute investment advice.
