Jobless claims fall sharply after Massachusetts fraud inflated data

The number of Americans filing for unemployment benefits last week fell by the most since 2021 after fraudulent claims in Massachusetts boosted the data in previous weeks.

Figures released Thursday by the Labor Department show initial claims for the week ended May 13 decreased by 22,000 to 242,000, well above the 2019 pre-pandemic average of 218,000 claims.

Continuing claims, filed by Americans who are consecutively receiving unemployment benefits, dropped to 1.79 million for the week ended May 6, a decrease of 6,000 from the previous week. 

Some economists have warned that it's difficult to get a clear picture of what's happening in the labor market after Massachusetts state officials acknowledged they are "experiencing an increase in fraudulent claim activities" involving unemployment benefits.

For months, the labor market remained a strong point in the slowing economy, despite an aggressive interest-rate hike campaign by the Federal Reserve.

But there are signs it is beginning to cool, even when excluding the noise from the fraudulent Massachusetts data.

"To try and measure the true signal from initial jobless claims, we construct an initial jobless claims series that excludes Massachusetts," Bank of America economists said in a note. "Initial jobless claims still trended higher in recent weeks. However, the rate of increases has been more modest."

Layoffs are on the rise and job openings are declining. Although hiring rose faster than expected in April, jobless claims are also steadily ticking higher. Economists widely expect unemployment to climb higher as a result of steeper interest rates, which could force consumers and businesses to pull back on spending.

The most recent projections from the Fed show that officials expect unemployment to rise to 4.6% by the end of next year, up from the current rate of 3.5%.

That could mean more than 1 million Americans lose their jobs between now and the end of the year.

Policymakers approved the 10th straight rate increase on May 3, lifting the federal funds rate to the highest level since August 2007.