In a sign that the US labor market is gradually slowing against a backdrop of diminished demand, the number of Americans filing new claims for unemployment benefits increased by a modest 1,000 last week, according to the latest data released by the Labor Department on Thursday. For the week ending Dec. 2, initial claims for state unemployment benefits reached a seasonally adjusted 220,000, slightly below the anticipated 222,000 forecasted by economists polled by Reuters.
This uptick in claims for unemployment benefits, however, comes at a time when the data tend to be volatile due to holiday-related factors, making it challenging to discern a definitive trend in the labor market. Despite the nuances in the weekly figures, broader indicators point to a decelerating job market.
The government’s report this week highlighted a ratio of 1.34 job openings for every unemployed person in October, marking the lowest ratio since August 2021. The ebbing demand for labor is concurrent with a cooling economy, influenced in part by elevated interest rates.
In a parallel development, a report from Challenger, Gray & Christmas revealed that US-based employers announced 45,510 job cuts in November, reflecting a 24% increase from the preceding month. Nevertheless, this figure represents a notable 41% drop compared to the same period a year ago.
The combination of a slackening labor market and receding inflationary pressures has led financial markets to speculate that the Federal Reserve may have concluded its current cycle of rate hikes. Markets are now anticipating a potential rate cut as early as the first quarter of the coming year, according to CME Group’s FedWatch Tool.
In the upcoming Federal Reserve meeting scheduled for next Wednesday, it is widely anticipated that interest rates will remain unchanged. Since March 2022, the Fed has incrementally raised its policy rate, resulting in a current range of 5.25% to 5.50%.
The claims for unemployment benefits report also provided insights into the number of people receiving benefits after the initial week of aid, serving as a proxy for hiring. This figure decreased by 64,000 to 1.861 million during the week ending Nov. 25. Notably, continuing claims have experienced fluctuations since mid-September, primarily attributed to challenges in adjusting data for seasonal variations following an unprecedented surge in benefit filings early in the COVID-19 pandemic.
Economists from Goldman Sachs estimate that seasonal distortions have contributed significantly to the increase in continuing claims since early September, projecting an additional uptick of 125,000 by March 2023. Lou Crandall, chief economist at Wrightson ICAP in New York, emphasized that the reported surge in beneficiaries reflects seasonal adjustment distortions that are expected to be addressed in future revisions.
It’s important to note that the claims for unemployment benefits data released do not impact the forthcoming November employment report scheduled for release on Friday, as they fall outside the survey period. A Reuters survey of economists predicts an estimated increase of 180,000 nonfarm payrolls in November, buoyed by the return of approximately 25,300 striking United Auto Workers union members. In October, the economy added 150,000 jobs, and the unemployment rate is anticipated to remain unchanged at 3.9%.
Source: Reuters
