The number of Americans filing new claims for unemployment benefits unexpectedly dropped last week, pointing to continued strength in the labor market.
The Labor Department reported Thursday that initial claims for state unemployment benefits fell by 26,000, to a seasonally adjusted 239,000, in the week ending June 25.
Economists polled by Reuters had forecast 265,000 applications for the past week.
In the previous three weeks, claims had remained at elevated levels, last seen in October 2021.
The readings suggested an uptick in layoffs, in line with an increase in announced job cuts outside the technology sector, as the economy begins to feel the impact of sharp interest rate hikes from the Federal Reserve.
Recent Minnesota policy changes, making tens of thousands of hourly-paid teaching workers eligible for state unemployment benefits during the summer vacation, also explain part of the surge in claims. Fraud in some states could also be a problem.
Applications, relative to the size of the labor market, are well below the 280,000 level that some economists say would indicate a significant slowdown in job growth, which has added an average of 314,000 jobs a month this year.
Job growth is being driven by the service sector, including the leisure and hospitality category, which continues to recover after companies struggled to find workers over the past two years. Industries like healthcare and education also experienced accelerated retirements during the COVID-19 pandemic.
The strength of the labor market helped support the economy in the first quarter, thanks to the acceleration of consumer spending, which offset the drag of a sharp slowdown in the pace of investment in inventories by companies.
Meanwhile, the Gross Domestic Product increased at an annualized rate of 2% last quarter, the Commerce Department reported in its third estimate of first-quarter GDP. This is an upward revision from the 1.3% pace reported last month.
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