By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits increased moderately last week, while private payrolls surged in June, suggesting that the labor market remained on solid ground despite growing risks of a recession.

The reports on Thursday, which also suggested that laid-off workers were experiencing shorter spells of unemployment, made it more likely that the Federal Reserve would resume raising interest rates this month after pausing in June.

Though job openings fell to a two-year low in May, they remained well above their pre-pandemic levels, with 1.6 vacancies for every unemployment person. More people are quitting their jobs, a sign of confidence in the labor market.

The data sketched an upbeat picture of the labor market ahead of the release of the closely watched employment report for June on Friday. They also raised the prospects of the economy skirting the much dreaded downturn later this year.

“Demand for new hires remains elevated and employers are still holding onto the workers they have,” said Nick Bunker, research director at Indeed Hiring Lab. “The data continue to make a soft-landing scenario increasingly likely.”

Initial claims for state unemployment benefits rose 12,000 to a seasonally adjusted 248,000 for the week ended July 1, the Labor Department said. Data for the prior week was revised to show 3,000 fewer applications than previously reported.

Economists polled by Reuters had forecast 245,000 claims for the latest week. Claims jumped to a 20-month high of around 265,000 in the first three weeks of June, suggesting that layoffs were spreading beyond the technology sector and interest rate-sensitive industries like housing and finance.

Minnesota recently extended eligibility for state unemployment benefits to tens of thousands of hourly paid school workers during the summer break, also contributing to the rise in filings. The surge was reversed as the month wound down.

Unadjusted claims rose 20,838 to 250,556 last week. There were large increases in filings in Michigan, New York, Kentucky and Ohio, some of which could be related to automobile manufacturers idling plants during summer while retooling for new models. They offset declines in Texas and New Jersey.

Claims, relative to the size of the labor market, are below the 280,000 level that economists say would signal a significant slowdown in job growth. Employment growth has averaged 314,000 jobs per month this year.

“An anticipated rise in layoffs on more restrictive monetary policy is not yet appearing in the data,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “A tight labor market will keep the rate path on an upward trajectory, until policymakers see a material rebalancing in supply and demand.”

Stocks on Wall Street were trading lower. The dollar was little changed against a basket of currencies. U.S. Treasury prices fell.

WORKERS STILL IN DEMAND

The labor market has remained resilient despite 500 basis points worth of interest rate hikes from the Fed since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years to stamp out inflation. A survey last month showed consumers’ views of the labor market more upbeat in June relative to May.

Financial markets have priced in a 25 basis point rate increase at the Fed’s July 25-26 meeting, according to CME Group’s FedWatch tool.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 13,000 to a four-month low of 1.720 million during the week ending June 24, the claims report showed. The so-called continuing claims are very low by historical norms, indicating that some laid-off workers were quickly finding new employment.

That was underscored by a second report from the Labor Department showing job openings, a measure of labor demand, fell 496,000 to 9.824 million by the last day of May.

Though that was the lowest level since April 2021, vacancies are well above the roughly 7 million level that prevailed before the COVID-19 pandemic. There were 1.6 job openings for every unemployed worker. The decrease in job openings was concentrated among businesses with one to nine employees.

Layoffs declined in May and 4.0 million people resigned from their jobs, an increase of 250,000 from April.

Services businesses boosted employment in June, helping to lift the Institute for Supply Management’s non-manufacturing PMI to 53.9 from 50.3 in May. Companies reported being “unable to find qualified candidates for some open positions” and “finally able to fill some positions that have been open for some time.”

That, combined with the ADP National Employment report showing private payrolls jumped by 497,000 jobs last month after rising 267,000 in May, bodes well for June’s employment report.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 225,000 jobs last month after rising 339,000 in May. The unemployment rate is forecast slipping to 3.6% from 3.7% in May.

A fourth report from global outplacement firm Challenger, Gray & Christmas showed U.S.-based employers announced 40,709 job cuts in June, down 49% from May. Companies planned 187,793 layoffs in the second quarter, a 31% decline from the January-March period’s tally.

Andrew Challenger, senior vice president at Challenger, Gray & Christmas, said it was “possible that the deep job losses predicted due to inflation and interest rates will not come to pass.”

(Reporting by Lucia Mutikani; Additional reporting by Safiyah Riddle; Editing by Chizu Nomiyama and Andrea Ricci)

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