Last week, the number of Americans submitting new jobless benefit applications unexpectedly increased, and the total number of individuals receiving unemployment checks at the end of November rose compared to the start of the year as labor demand starts to decline.

According to the Labor Department’s report released on Thursday, initial unemployment claims surged by 17,000, reaching a seasonally adjusted total of 242,000 for the week ending December 7. Economists surveyed by Reuters had anticipated only 220,000 claims for this week.

This increase in claims may be attributed to disruptions following the Thanksgiving holiday and is not necessarily a sign of a significant change in the labor market’s status.

The number of claims is expected to remain unpredictable in the upcoming weeks, complicating the assessment of the labor market health. Despite this volatility, the labor market is cooling down.

While job growth picked up in November after being significantly impacted by strikes and hurricanes in October, the unemployment rate rose to 4.2%, having remained at 4.1% for the previous two months.

A softening labor market increases the likelihood that the Federal Reserve may reduce interest rates next week for the third time since initiating its policy easing process in September, notwithstanding limited progress in achieving its inflation target of 2% in recent months.

The Federal Reserve’s overnight interest rate is currently set between 4.50% and 4.75%, following a series of hikes totaling 5.25 percentage points from March 2022 to July 2023 aimed at controlling inflation.

Maintaining a stable labor market is crucial for sustaining economic growth. Historically low levels of layoffs have contributed significantly to this stability, which in turn supports consumer spending.

The report indicated that the number of individuals receiving benefits following their first week of aid rose by 15,000, bringing the seasonally adjusted total to 1.886 million for the week ending November 30. This higher number of ‘continued claims’ suggests that some laid-off workers are facing extended periods of unemployment.

Additionally, the median length of unemployment has increased to the highest level seen in almost three years as of November.