The US unemployment rate surged last week, indicating the labor market was slowing due to rising risks of a recession.
Initial claims for state unemployment benefits rose 28,000 to 261,000 for the week ended June 3, the Labor Department said. Economists polled by Reuters forecast 235,000 claims for the latest week.
Despite the surge in applications, claims remain at levels consistent with a tight labor market. In May, the government added 339,000 jobs, up from 339,000 in the same period last year. Although the unemployment rate increased to a 7-month high of 3.7% in April, it still remains low by historical standards.
Job growth is being driven by the services sector, including the leisure and hospitality sector, which is still struggling to find workers over the past two years. During the COVID-19 pandemic, industries like healthcare and education experienced accelerated retirements.
The Institute for Supply Management ISM reported that its PMI services dropped in May, mainly due to weakness in employment.
ISM comments from services firms ranged from trying to do more with the same staff, to being on a hiring freeze until there's a better understanding of where the economy is headed, the ISM said. Last week, the ISM reported that its manufacturing PMI for May was stuck below the 50-mark mark for the seventh consecutive month, the longest such stretch since the Great Recession.
The number of people receiving benefits after an initial week of assistance, a proxy for hiring, fell 37,000 to 1.757 million over the same period last year, the claims report said.