U. S. Labor Market strong despite rising unemployment
2022.12.29 14:35
U. S. Labor Market strong despite rising unemployment
Budrigannews.com – Despite the Federal Reserve’s efforts to dampen labor demand as part of its effort to lower inflation, the number of Americans filing new claims for unemployment benefits and the total number receiving jobless assistance reached their highest levels since February, respectively, last week.
The Labor Department reported on Thursday that initial claims for state unemployment benefits increased by 9,000 to a seasonally adjusted 225,000 for the week ending December 24, which was in line with the median estimate of economists polled by Reuters.
In the meantime, the number of people receiving benefits in the week ending December 17 following an initial week of assistance increased by 41,000 to 1.710 million.
These so-called continuing claims, which are a proxy for hiring, have risen since the beginning of October after reaching their lowest level since 1969 in May. The most recent report is the first since February to show that they have exceeded the lower end of the 1.7-1.8 million trend that was prevalent in the years preceding the coronavirus pandemic. At the time, this level was thought to be indicative of a tight labor market.
Even though the number of new benefits claims has fluctuated over the past few weeks, they have remained well below the 270,000 threshold, which economists consider to be a warning sign for the labor market. As laid-off workers appear to transition into new jobs with relative ease, a flurry of layoffs in the technology sector and interest-rate-sensitive industries like housing have yet to have a significant impact on claims.
“Given the new increase in cutback declarations coming from huge organizations, we would hope to see a greater amount of an expansion in claims than we normally see during this season, however that far hasn’t occurred,” Thomas Simons, currency market financial specialist at Jefferies, said in a note.
According to Simons, “this is very hard to quantify” another possibility that severance payments may be causing is a delay in when laid-off workers apply for benefits.
“It feels like we have a structural labor shortage out there,” said Federal Reserve Chair Jerome Powell earlier this month, the chief architect of the central bank’s aggressive interest rate hikes to reduce inflation.
As the U.S. economy has created an average of 392,000 new jobs per month this year despite rapid rate hikes and growing fears of a recession next year, the labor market’s resilience is a primary focus for Fed policymakers. As of October, there were approximately 1.7 open jobs for every unemployed person, which is about half a point higher than the ratio before the pandemic.
Even though it has recently shown signs of heading lower, officials believe that strength provides ample room for them to continue raising interest rates to bring inflation down. By their preferred measure, inflation remains nearly three times their target level of 2% per year.
The Federal Reserve raised interest rates from close to zero in March to the current range of 4.25 percent to 4.5 percent, and officials anticipate that they will surpass 5 percent in 2023, a level not seen since 2007.
Additionally, according to Fed officials, the unemployment rate could rise nearly a full percentage point to 4.6% next year. This would equate to approximately 1.5 million job losses at the current workforce size in the United States.
With the exception of the two months of historic job losses that occurred early in the coronavirus pandemic, achieving that would require a significant reversal of an employment growth trend that has persisted throughout the U.S. economy for more than a decade. The 22 million jobs cut during the COVID-19 lockdowns have all been restored to the American labor market, which has not seen net payrolls decline for three months or more in a row since 2010.
Through November, the rate of job growth had been nearly 400,000 per month on average, but that rate has slowed down in the second half of the year. The typical over the beyond three nonfarm payrolls reports from the public authority has been 272,000.
On January 6, the Labor Department will release the employment statistics for December in the United States. Reuters polled economists predict that payrolls will increase by another 200,000 this month. It is anticipated that the unemployment rate remained unchanged at 3.7%.
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Challenger, Gray & Christmas, an outplacement firm, will also update its count of corporate layoff plans for December next week after its November report revealed the highest number of workforce reduction announcements since January 2021. However, the technology industry, which experienced a boom during the pandemic, has seen the greatest concentration of layoffs thus far, and the year-to-date total number of announcements through the month of last month was the second lowest on record dating back to 1993.
Before implementing layoffs, economists anticipate that businesses will likely reduce their hiring. After having difficulty finding workers during the COVID-19 pandemic, employers have generally been reluctant to fire employees.
“The JOLTS (Job Opening and Labor Turnover Survey) and NFIB (National Federation of Independent Businesses) data suggest that small businesses remain eager to absorb some workers laid off from larger businesses,” Simons stated. “At least for the near term.” Although this dichotomy of demand cannot last forever, it will assist the labor market in achieving a softer landing than it otherwise would.”
