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JOBLESS CLAIMS, CHALLENGER LAYOFFS, LABOR COSTS/PRODUCTIVITY: OVER TO YOU, MAY JOBS REPORT

On Thursday, the band continued warming up for May's non-farm payrolls report, due out on Friday, with three labor market indicators out.

First, 225,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI last week, a 6.1% increase from the prior week's print, and 12,000 more than analysts expected.

Ironing out weekly volatility, the four-week moving average of initial claims now has a clear upward bias.

Despite the uptick, claims data has yet to reflect a growing chorus of high-profile job cut announcements of late.

On that subject, outplacement firm Challenger, Gray & Christmas (CGC) USCHAL=ECI reports that U.S. firms announced 97,006 layoffs in May.

That marks an 11% monthly increase and 3% more than were announced in May 2025. It was also the highest reading for May since 2020, amid the COVID shutdown.

There have been a total of 397,755 layoffs announced so far in 2026, down 43% from last year's January-to-May period, which was skewed by DOGE firings.

For the third straight month, artificial intelligence was the top reason provided, responsible for 38,579 pink slips, or 39.8% of the total. So far this year, AI can be blamed for 22% of all layoffs.

"On top of the headline AI story, we're seeing a sharp rise in cuts tied to acquisitions and mergers and a jump in bankruptcy-related losses, which tells me companies are restructuring aggressively as they reposition for an AI-driven economy," writes Andy Challenger, labor and workplace expert at CGC.

So far this year, jobs in the technology sector are most often in the crosshairs, responsible for 31.1% of all layoffs. That's triple the number from the next hardest-hit sector, transportation - likely related to the Spirit Airlines collapse.

Continuing jobless claims USJOBN=ECI reported on a one-week lag, inched 0.4% lower to 1.777 million, just a hair north of consensus.

Whether that reflects hires or benefits expiry (or a combination of the two), consumer survey data shows laid-off workers are finding it increasingly difficult to find a replacement gig.

Back to the Challenger report: through May 2026, employers have announced plans to hire 80,472 workers, which CGC calls "historically low by pre-pandemic standards."

"It would be unwise, however, to conclude that all is fine and well with the labor market simply because claims are low. “Low fire, low hire” remains an apt description of labor market conditions," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

"Weak hiring means many labor market entrants, as well as the long-term unemployed, often still are struggling to find work. We continue to think the unemployment rate will creep up this year, eventually becoming a bigger worry for the Fed than the inflation outlook."

As if all that weren't enough, the Labor Department tossed in its revised take on first-quarter labor costs and productivity.

In the January-March period, unit labor costs USLCA=ECI — which gauge the average cost of labor per unit of output produced — revised down to 1.8% from 2.3% at a quarterly annualized rate, cooler than the 2.5% growth predicted by economists and a sharp deceleration from Q4's 4.6% increase.

Productivity USPROP=ECI — which measures average output per hour — printed at a measly 0.3%, significantly weaker than the initially reported 0.8%. That marks an abrupt slowdown from Q4's 1.6% productivity growth rate.

"Productivity and unit labor costs were revised down in Q1, but their annual trends are diverging," says Matthew Martin, senior U.S. economist at Oxford Economics. "Productivity growth is still up by nearly 3% and continues to run well above prior cycle averages. However, annual growth in unit labor costs slipped to 0.5%, the slowest pace of growth in five years."

All of the above is prologue to the Labor Department's employment report due tomorrow, which is expected to show the U.S. economy added 85,000 jobs in May, with the unemployment rate standing firm at 4.3%.

(Stephen Culp)

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