US weekly jobless claims rose to a four-month high last week, while productivity growth was revised sharply lower, offering a mixed picture of the economy just ahead of the Federal Reserve's next policy meeting. The dual data points suggest the labor market may be cooling and that businesses are getting less output per hour worked, a combination economists tend to watch closely.
Jobless claims climb
Initial filings for unemployment benefits increased to 242,000 for the week ending March 8, the highest level since mid-November. The jump of 21,000 from the previous week beat analysts' expectations and marked the largest weekly rise in months. Continuing claims, which track people already receiving benefits, also edged up slightly, hinting at more difficulty finding new jobs.
The rise in claims was not concentrated in any single state or industry, according to the Labor Department's data. That broad-based increase often signals a general softening rather than a one-off event like a plant closure or natural disaster.
Productivity revision goes the wrong way
The Bureau of Labor Statistics also revised down its measure of nonfarm business productivity for the fourth quarter of 2024. The annualized rate was lowered to 1.2% from the initial estimate of 1.5%. That revision means workers produced less per hour than previously thought, potentially squeezing corporate profit margins if wages keep rising.
Unit labor costs, a key inflation gauge for employers, were revised up to a 2.2% annual rate from the earlier 1.5% reading. When productivity weakens and labor costs accelerate, companies often face pressure to raise prices or trim payrolls — neither of which the Fed wants to see as it tries to bring inflation down.
The Federal Reserve has said it needs to see more evidence that inflation is sustainably heading toward 2% before it starts cutting interest rates. The combination of rising jobless claims and falling productivity complicates that picture. Higher claims suggest the labor market is loosening, which could ease wage pressures. But slower productivity growth and rising unit labor costs push in the opposite direction, keeping the cost of doing business elevated.
Fed Chair Jerome Powell has repeatedly said the central bank wants to be “data dependent.” This week's numbers offer data that pull in opposing directions, making it harder to predict the timing of the first rate cut. Markets currently price in a roughly 50% chance of a cut by June, according to CME's FedWatch tool.
Some economists have begun to worry that the economy could tip into a period of stagflation — weak growth combined with sticky inflation — if the productivity slowdown persists. That scenario would leave the Fed with few good options.
The next reading on weekly jobless claims is due out Thursday. Investors will be watching to see whether the increase was a one-week blip or the start of a trend. The BLS is scheduled to release its first-quarter productivity estimate in early May, which will show whether the slowdown continues.
