U.S. initial jobless claims fell last week to the lowest level since September 2022, according to data released Thursday by the Labor Department. The decline signals ongoing strength in the labor market despite recent layoffs in some sectors.
Jobless Claims Hit 187,000, Beat Expectations
The number of Americans filing for first-time unemployment benefits dropped to 187,000 for the week ending January 14th, down from 207,000 the previous week. The reading beat economists’ forecasts of 207,000 claims .
The last time claims were this low was in the first week of September 2022, when they hit 166,000. Before the pandemic, weekly claims typically hovered in the low 200,000s.
Table 1: Key Figures on Latest Jobless Claims Data
|Initial Jobless Claims (Week Ending Jan 14)
|Previous Week’s Claims
|4-Week Moving Average
|Continuing Claims (Week Ending Jan 7)
The four-week moving average, which smooths out weekly volatility, also fell by 6,500 to 212,500 last week. Meanwhile, continuing jobless claims for the week ending January 7th declined by 63,000 to 1.655 million. This signals that more people are exiting unemployment benefits rolls.
Signs of Cooling After Torrid Pace
The drop in claims adds to evidence that layoffs remain low amid a still-tight job market. Employers have been reluctant to let workers go given widespread labor shortages. There were over 10 million job openings at the end of November – nearly 1.8 open roles for every unemployed American.
However, some cracks may be emerging after last year’s torrid pace of job growth. Several major companies, including Amazon, Salesforce, and Goldman Sachs, have announced high-profile job cuts in recent weeks amid cost-cutting efforts. Tech firms in particular are reducing headcount after over-hiring during the pandemic.
The Fed is also intentionally trying to cool off demand for labor as it battles high inflation through aggressive interest rates hikes. The expectation is this could translate to somewhat higher layoffs over time.
So while jobless claims remain historically low for now, economist Ian Shepherdson of Pantheon Macroeconomics said “this may be as good as it gets” .
Fed Rate Hikes a Key Wild Card
A major wild card is how much further the Federal Reserve will need to raise interest rates to get inflation under control. The combination of still-low unemployment alongside sticky inflation likely means the Fed will need to push rates higher than expected several months ago.
Most economists predict at least two more 25 basis point rate hikes this year. But an increasing number believe a 50 basis point hike could be on the table for the March policy meeting if upcoming inflation data doesn’t show more progress. This poses risks to the job market outlook.
“We look for payrolls to fall by an average of 50,000 per month this year as demand moves into better balance with supply,” said Nancy Vanden Houten of Oxford Economics . She projects the unemployment rate will rise to 4.6% by the end of 2024 as Fed rate hikes take their toll. That’s up from 3.5% currently, which is tied for the lowest since 1969.
Other analysts think any cooling in the labor market this year will be modest given the substantial cushion provided by the economy’s strong fundamentals. Employers may hesitate to lay off workers that were so difficult to hire in the first place.
“The labor market continues to show resilience amid a slowing economy,” said Rubeela Farooqi of High Frequency Economics.
So while economists will be monitoring jobless claims closely for signs of any cracks in the coming months, the labor market enters 2023 from a position of strength. Any easing in wage and jobs growth would likely be welcomed by Fed officials given mounting risks of recession.
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