The number of new unemployment insurance claims edged down last week to 236,000. This brought the four-week average to 245,000, just over 4.0 percent higher than the year-ago level. However, the number of continuing claims rose by 37,000 to 1,974,000, which is 7.0 percent above the year-ago level.

These are not frightening numbers in the sense that they don’t show a labor market falling off a cliff, as we often see at the start of a recession. But they do show a labor market that is gradually weakening.

What we are seeing is a situation where layoffs are occurring at a relatively moderate pace, but workers who lose their jobs are having difficulty finding new ones. This is consistent with the data from the Job Openings and Labor Turnover Survey, which show a modest falloff in job openings and hires, as well as a decline in the percentage of workers voluntarily quitting their jobs.

This increase in continuing claims, coupled with evidence of a weakening in the labor market in the May employment report, leads me to expect a slight increase in the unemployment rate to 4.3 percent when the June employment report comes out on Thursday.

The biggest reason for expecting a rise in the unemployment rate was the sharp fall in the number of people reported employed in May. Employment fell by almost 700,000 in the household survey, but the unemployment rate didn’t rise since the size of the labor force declined by 625,000.

It is possible to read too much into this; the survey data are always erratic, and employment rose by 460,000 in April, which meant that May’s number left us only 235,000 below the March level. Nonetheless, there were enough other signs in the May report to take the assessment of labor market weakening seriously.

The drop in the size of the labor force was enough to push the employment-to-population ratio (EPOP) up by 0.3 percentage points to 59.7 percent, the lowest level since January of 2022. This wasn’t just baby boomers hitting retirement. There was also a drop of 0.2 pp in the EPOP for prime-age workers (ages 25 to 54).

There were some other negative signs in the May report. The unemployment rate for workers between the ages of 20 and 24 remained at 8.2 percent, 2.2 pp above the low hit in January of 2024. Their EPOP fell to 65.4 percent in May, 2.8 pp below the peak hit last January. Young workers would be expected to be hit first in a weak labor market, since they are the ones most likely to be looking for jobs.

The unemployment rate for Black women rose to 6.2 percent in May, the highest rate since February 2022. Black workers tend to be hit first and hardest in a downturn. On the other side, the unemployment rate for Black men fell by 0.4 pp to 5.2 percent.

Perhaps the most concerning item in the May jobs report was a drop in the share of unemployment due to voluntary quits. This share fell to 9.8 percent, the lowest since May of 2021. By comparison, the share averaged 13.2 percent in the years 2018 and 2019, when the unemployment rate was roughly comparable to the May number. This suggests workers have little confidence in their labor market prospects, so they are reluctant to quit a job until they have a new job lined up.

Long and short, I’m betting on a rise in the unemployment rate to 4.3 percent in June and a further weakening of the labor market. This is not a catastrophe; 4.3 percent is still relatively low, but it is going in the wrong direction — and it could get considerably worse.

This first appeared on Dean Baker’s Beat the Press blog.

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