Americans filing for unemployment benefits hit four-month high amid Iran war uncertainty

The number of Americans filing new claims for unemployment benefits rose to a four-month high last week, signaling growing caution among employers as the economic fallout from the Iran war continues to weigh on business sentiment.

Initial claims for unemployment benefits rose by 13,000 to 225,000 in the week ended May 30, the highest level since early February, according to the US Labor Department. Economists polled by FactSet had expected 211,000 claims, according to the AP.

Claims are rising, but layoffs remain historically low

Despite this increase, layoffs remain relatively muted by historical standards, suggesting that the U.S. labor market remains bullish amid growing economic uncertainty.

Weekly jobless claims are widely regarded as a real-time indicator of layoffs and the health of the labor market. Economists say the market remains in a “low-rent, low-fire” environment where employers are reluctant to hire and fire workers, according to the AP.

The unemployment rate currently stands at 4.3%, but job seekers continue to face challenges finding new positions as hiring activity slows.

The Iran war increases the pressure on the economy

The rise in claims comes as the ongoing conflict involving Iran has injected new uncertainty into the US economy.

The closure of the Strait of Hormuz, a key global oil transit route, has caused energy prices to soar. Oil prices have risen roughly 50% since the conflict began in late February, while average US gasoline prices have risen to $4.24 a gallon from less than $3 earlier this year.

Higher fuel costs are putting pressure on consumers and businesses alike, forcing some employers to delay hiring decisions.

Inflation remains high

Recent government data showed consumer inflation rose 3.8% year-on-year in April, the biggest increase in three years. Wholesale prices also jumped 6% from a year earlier to the highest level in more than three years.

Economists warn that the full impact of rising energy prices may not yet be reflected in food and consumer prices.

Persistent inflation remains well above the Federal Reserve’s 2% target, limiting policymakers’ ability to support growth through interest rate cuts.

The Fed is likely to remain cautious

The Federal Reserve left interest rates unchanged at its last meeting, citing increased inflation and uncertainty linked to tensions in the Middle East.

Some Fed officials have even suggested that further rate hikes could be considered if inflationary pressures intensify.

Higher borrowing costs continue to weigh on business investment and recruitment plans.

Hiring is slowing as layoffs remain limited

While employers added a more-than-expected 115,000 jobs in April, hiring momentum weakened compared to previous years.

Weekly jobless claims have generally hovered between 200,000 and 250,000 since the pandemic picked up, but hiring has slowed amid high interest rates, tariff uncertainty and broader economic headwinds.

Several major companies, including Verizon, UPS, Amazon, Disney, Starbucks and Walmart, have announced layoffs in recent months.

The Labor Department also reported that the four-week moving average of claims, which smooths out weekly fluctuations, rose 6,500 to 214,750.

Meanwhile, continuing claims — the total number of Americans receiving unemployment benefits — fell by 8,000 to 1.78 million in the week ended May 23.

Investors and policymakers will now turn their attention to the government’s May jobs report due on Friday for further clues about the strength of the US labor market.

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