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WASHINGTON: The number of Americans filing new claims for unemployment benefits surged last week, suggesting that the labor market was slowing amid mounting risks of a recession.

Initial claims for state unemployment benefits jumped 28,000 to a seasonally adjusted 261,000 for the week ended June 3, the Labor Department said on Thursday. Economists polled by Reuters had forecast 235,000 claims for the latest week.

Despite the surge in applications, claims remain at levels consistent with a tight labor market. The government reported last week that the economy added 339,000 jobs in May. Although the unemployment rate increased to a seven-month high of 3.7% from 3.4% in April, it remains low by historical standards.

Job growth is being driven by the services sector, including the leisure and hospitality category, which is still catching up after businesses struggled to find workers over the last two years. Industries like healthcare and education also experienced accelerated retirements during the COVID-19 pandemic.

US weekly jobless claims rise modestly; layoffs increase in May

The jump in claims was a sign of more cracks forming in the labor market. The Institute for Supply Management (ISM) reported on Monday that its services PMI dropped in May, attributed mostly to weakness in employment.

According to the ISM, comments from services businesses ranged from “we are trying to do more with the same staff,” to being “on a hiring freeze until there’s a better understanding of where the economy is headed.”

That aligns with economists’ belief that the economy will soon feel the full impact of the 500 basis points worth of interest rate increases from the Federal Reserve since March 2022 to tame inflation.

The ISM reported last week that its manufacturing PMI was stuck below the 50 threshold in May for the seventh straight month, the longest such stretch since the Great Recession.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 37,000 to 1.757 million during the week ending May 27, the claims report showed.

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