Jobless claims rise as oil above $90 pressures labor market

Initial US jobless claims rose last week, the Labor Department reported Thursday, as elevated energy costs and the prolonged conflict in Iraq begin to weigh on hiring activity across the world's largest economy.

US initial jobless claims rose last week, showing the labor market is softening as Brent crude above $90 a barrel and the war in Iraq inject uncertainty into business hiring decisions.

"The modest uptick in claims reflects a labor market that remains resilient at the headline level but is showing cracks beneath the surface, particularly in sectors exposed to energy costs and geopolitical uncertainty," economists at Lloyds Bank said in a note Thursday.

The increase comes as the US core PCE inflation report — the Federal Reserve's preferred inflation gauge — is also due for release Thursday, with economists expecting the data to show persistent price pressures. Brent crude has rebounded toward the $100 region after renewed US-Iran hostilities in the Gulf, with the 22-to-26 May price gap at $97.72 to $98.49 remaining unfilled, according to IG.

The combination of rising jobless claims and elevated energy costs presents a challenge for the Federal Reserve, which has maintained a hawkish stance as inflation runs above its 2 percent target. If the labor market continues to soften while inflation stays sticky, the central bank faces a difficult trade-off between supporting employment and containing prices.

The claims data adds to a growing body of evidence that the US economy is losing momentum after a strong first quarter. Manufacturing surveys have shown a pullback in hiring intentions, while consumer confidence has dipped as gasoline prices rise.

The Labor Department's report comes during a busy week for economic data, with the government also releasing revised GDP figures, durable goods orders, and personal income and spending data alongside the PCE inflation reading. Markets are pricing in a higher probability of the Fed maintaining its current rate stance through the summer, with the first cut not fully priced until late 2026, according to overnight index swap markets.

The war in Iraq has emerged as a key wildcard for the economic outlook. The conflict has disrupted supply chains in the region and pushed energy costs higher, squeezing margins for businesses that had been expecting a more benign inflation environment heading into the second half of the year. The US 10-year Treasury yield has moved back toward the 4.50 percent region as traders reassess how elevated oil prices and supply disruption risks could alter the Federal Reserve's rate path, while the US Dollar has regained defensive support as geopolitical tensions intensify.

This article is for informational purposes only and does not constitute investment advice.