U.S. economy is plunging in recession? Economists make stunning claims

Is the U.S economy slipping into recession? That's the big question after the number of Americans filing new applications for unemployment benefits fell last week, reversing the prior week's jump, but the labor market has softened as both the demand for and supply of workers have diminished. Though the report from the Labor Department on Thursday showed fewer people collected unemployment checks in the last week of August, that was likely because many had exhausted their eligibility, which is limited to six months in most states. The hiring side of the labor market has almost stalled even as layoffs remain relatively low. Demand for workers has slowed, with economists blaming uncertainty stemming from tariffs on imports. At the same time, an immigration crackdown has reduced labor supply, creating what Federal Reserve Chair Jerome Powell on Wednesday described as a "curious balance."

Does that mean the onset of a recession is imminent? Probably not as economists welcomed the decline in applications as a sign of the economy's resilience.

The blast of claims last week was just a blip, and the steady trend in claims continues at a rate that is way too low to signal a recession, said Carl Weinberg, chief economist at High Frequency Economics. "It also undermines calls for more and bigger rate cuts, both at the Fed and in the markets."


Initial claims for state unemployment benefits decreased 33,000 to a seasonally adjusted 231,000 for the week ended September 13. Claims in the prior week had jumped to 264,000, a level last seen in October 2021.

That increase in applications was concentrated in Texas, with the state's Workforce Commission later saying it had since the September 1 Labor Day holiday "observed an uptick in identity fraud claim attempts aimed at exploiting the unemployment insurance system."

Economists polled by Reuters had forecast 240,000 claims for the latest week. Unadjusted claims dropped 10,384 to 194,478 last week, with sharp decreases in Texas, Connecticut and Michigan. These more than offset notable increases in New York, South Carolina and Massachusetts.

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of September's employment report. Claims fell slightly between the September and August survey weeks. Payrolls increased by only 22,000 jobs in August, with employment gains averaging 29,000 positions per month over the last three months. The unemployment rate is near a four-year high of 4.3 per cent. The U.S. government said last week that payrolls could have been overstated by 911,000 jobs in the 12 months through March.

The stall-speed pace of hiring means long bouts of unemployment for those who lose their jobs. The number of people receiving benefits after an initial week of aid fell 7,000 to a still-high 1.920 million during the week ending September 6, the claims report showed. The reason for the drop may be that many people have exhausted their eligibility, which is limited to 26 weeks in most states.

The average duration of joblessness jumped to 24.5 weeks in August, the longest since April 2022, from 24.1 in July.

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