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Fraud in Massachusetts is boosting US weekly jobless claims, economists say

Signage for a job fair is seen on 5th Avenue after the release of the jobs report in Manhattan, New York City

WASHINGTON (Reuters) - Fraudulent filings for state unemployment insurance aid in Massachusetts could be distorting U.S. weekly unemployment claims data, economists warned on Wednesday, making it harder to get a clear picture of the labor market in the short-term.

A surge in applications in Massachusetts accounted for the increase in initial claims for unemployment benefits during the week ending May 6, which drove them to the highest level since Oct. 30, 2021.

"We find that Massachusetts accounts for nearly all of the recent shift up in the pace of weekly jobless claims reported nationally," JPMorgan said in a note, citing its analysis of the weekly claims data. "Moreover, across the remaining 49 states we do not see signs of an unusual rise in claims recently, suggesting the issue of significant fraud is fairly limited to date."

The Massachusetts Department of Unemployment Assistance, since the release of the claims data last Thursday, has acknowledged that it "is experiencing an increase in fraudulent claim activities where people attempt to gain access to active UI (unemployment insurance) accounts or file new UI claims using stolen personal information so they can fraudulently obtain unemployment benefits."

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According to JPMorgan's analysis of the weekly claims data, the unusual rise in claims from Massachusetts might have started earlier than the week ending May 6.

The labor market is being closely watched for signs of stress from the Federal Reserve's fastest interest rate-hiking campaign since the 1980s to tame inflation. Though it has shown some signs of cooling, the labor market has remained tight, with 1.6 job openings for every unemployed person in March. The unemployment rate is at a 53-year low of 3.4%.

Bank of America Securities also cautioned against reading too much into the recent jump in claims because of the anomalies in Massachusetts. Claims from Massachusetts accounted for 45.6% of the increase in unadjusted claims in the week ending May 6.

Bank of America Securities noted that Massachusetts employment accounted for less than 3% of U.S. private payrolls, and initial jobless claims have made up less than 3% of all claims in 328 of the 411 weeks from July 27, 2015, to May 6, 2023.

Initial claims increased 22,000 to a seasonally adjusted 264,000 during the week ending May 6. Excluding Massachusetts, claims would have been 224,000, the highest level since mid-April, according to Bank of America Securities.

"Unlike the signal from the official claims data, our adjusted series suggests job separations have not increased much recently," it said.

Data due out on Thursday is likely to show initial claims fell by 10,000 to a seasonally adjusted 254,000 last week, according to a Reuters survey of economists.

"While we had been looking for claims to remain elevated around 260,000 for tomorrow's release for the week ending May 13, the fact that Massachusetts is taking efforts to detect and prevent fraudulent claims suggests that claims could come in measurably lower than expected," said JPMorgan.

"That said, we do expect claims to gradually trend higher this year, consistent with our baseline forecast for further cooling in the labor market."

(Reporting by Lucia Mutikani; Editing by Leslie Adler)