New claims for unemployment benefits in the US slow down indicating a still tight labor market

Last week, there was a lower-than-expected rise in the number of Americans filing for unemployment benefits. Experts believe that this is a sign telling us that the labor market is still tight. The American economy rebounded quite fast unlike what experts estimated in the third quarter. Unemployment rolls kept up a slow expansion since October this year. In December, we were able to witness the number of new claims for unemployment benefits dwindle.

This raises another risk for American residents. Would the Federal Reserve keep raising interest rates even higher as it tries to battle the ever-rising inflation? The US central bank is acting with the target of cooling demand for everything within the country, be it labor or housing, to bring inflation down to 2%. The chief economist of FWDBONDS, Christopher Rupkey, says that the economy is not quite as close to death’s door as the markets previously thought. He believes that some upwards price pressures will persist in 2023 as the Fed raises interest rates even higher in the next year.

New claims for state unemployment benefits increased by 2,000 to the seasonally adjusted figure of 216,000 last week, as seen by the Labor Department data on Thursday. Economists had previously estimated a value of 222,000 new unemployment benefits claims for the week ending on December 17^th. Although the number of claims rose and fell in recent days, they stayed below 270,000. Economists predicted that this figure would be one to wave a red flag of warning for the labor market.

It is interesting how the massive layoffs in the tech sector and some industries greatly affected by the interest rate hikes, such as the housing sector, have not impacted the bulk of unemployment claims. The number of unadjusted claims decreased by 4,064 to 247,867 in the last week. A large increase in clams in Massachusetts was offset by significant declines in California, Indiana, Ohio, and Texas.

Jerome Powell, the Fed Chair, feels as if we are having a structural labor shortage. Last Wednesday, the Fed increased its policy rate by 50 basis points to a range of 4.25%-4.50%. This is the highest value seen since late 2007. According to Fed officials, this value will rise even higher to between 5.00% and 5.25% in the next year. As the stocks on Wall Street fell, the dollar came ahead in the race against a couple of other currencies out there. US Treasury yields too rose significantly.

The number of unemployment claims decreased between the November and December survey weeks. This suggests that the US had a full month of solid employment gains in between. This year, the average job growth reached a figure of 392,000 per month. We will need to observe the next week’s unemployment claims data to gain more insight into the hiring in December.

Many businesses struggled to find good workers during the Covid-19 pandemic. As a result, most employers had a reluctant attitude toward cutting down their workforce in the past few years. A lot of businesses are more likely to freeze their hiring before they even consider laying off people. The number of individuals filing continuing claims decreased by 6,000 to a value of 1.672 million during the week that ended on December 10^th. When comparing with this time of the year 2019, continuing claims are almost 150,000 lower. Some economists believe that this too is a sign of a tight labor market.