WASHINGTON: The number of Americans filing new claims for unemployment benefits edged higher last week and a week earlier the total number on jobless assistance reached the highest since February, but both remain at levels indicating the US job market remains tight, even as the Federal Reserve works to cool demand for labour as part of its bid to lower inflation.
Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 225,000 for the week ended Dec 24, the Labor Department said on Thursday (Dec 29), in line with the median estimate among economists polled by Reuters.
Meanwhile, the number of people receiving benefits after an initial week of aid rose 41,000 to 1.710 million in the week ending Dec 17.
After hitting the lowest level since 1969 in May, those so-called continuing claims, a proxy for hiring, have drifted higher since early October. The latest report is the first since February to show them breaching the lower end of the 1.7-1.8 million trend that prevailed in the years leading up to the coronavirus pandemic, a level seen then as emblematic of a tight labour market.
And, while the figures for new benefits claims have been choppy in recent weeks, they have held well below the 270,000 threshold that economists see as a red flag for the labour market. A raft of layoffs in the technology sector and interest rate-sensitive industries like housing have yet to leave a notable imprint on claims as laid-off workers appear to cycle into new jobs with relative ease.
“Given the recent uptick in layoff announcements coming from large businesses, we would expect to see more of an increase in claims than we typically see at this time of year, but so far it hasn’t happened,” Thomas Simons, money market economist at Jefferies, said in a note.
It may also be that severance payments are causing a delay in when laid-off workers apply for benefits, Simons said, though “this is very hard to quantify.”
Federal Reserve chair Jerome Powell – the chief architect of the central bank’s aggressive interest rate increases aimed at bringing too-high inflation to heel – earlier this month said “it feels like we have a structural labor shortage out there”.
Indeed, the labour market's resilience is a central focus for Fed policymakers, as the US economy has minted an average of 392,000 new jobs a month this year despite rapid rate increases and growing fears of a recession next year. There were about 1.7 open jobs per unemployed individual as of October, roughly half a point above the openings-to-unemployed ratio seen before the pandemic.
Officials see that strength as providing ample room for them to continue to raise interest rates to bring down inflation, which by their preferred measure remains nearly three times their targeted level of 2% annually even if it has recently shown signs of heading lower.
The central bank has lifted rates from near zero in March to the current range of 4.25% to 4.50% and Fed officials project it will breach the 5% mark in 2023, a level not seen since 2007.
Fed officials also projected the unemployment rate could climb nearly a full percentage point to 4.6% next year, which at the current size of the US workforce would equate to about 1.5 million job losses.
Achieving that, however, would require a substantial reversal of an employment growth trend that has persisted across the US economy for more than a decade with the exception of the two months of historic job losses early in the coronavirus pandemic. The US job market has recovered all of the 22 million positions cut during the Covid-19 lockdowns, and it has not experienced three or more months in a row of net payrolls declines since 2010.
Job growth through November had averaged nearly 400,000 a month, although that rate has tempered in the second half of the year. The average over the past three non-farm payrolls reports from the government has been 272,000. – Reuters