The number of Americans filing new claims for unemployment benefits dropped to a nine-month low last week as the labor market remains resilient despite higher borrowing costs and mounting fears of a recession this year.
The surprise decline in weekly jobless claims reported by the Labor Department on Thursday raised cautious optimism that the economy could skirt a recession or just experience a shallow and short downturn. Federal Reserve Chair Jerome Powell told reporters on Wednesday that “the economy can return to 2% inflation without a really significant downturn or a really big increase in unemployment.”
“Some day soon economists will have to take down those calls for recession in 2023 because the labor market refuses to budge from the lowest unemployment rate in decades,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
Initial claims for state unemployment benefits dropped 3,000 to a seasonally adjusted 183,000 for the week ended Jan. 28, the lowest level since April 2022. It was the third straight weekly decline in applications. Economists polled by Reuters had forecast 200,000 claims for the latest week.
Unadjusted claims slipped 872 to 224,356 last week. There were notable declines in applications in Kentucky, California and Ohio, which offset increases in Georgia and New York.
Claims have been running low this year, consistent with a persistently tight labor market. The government reported on Wednesday that there were 11 million job openings at the end of December, with 1.9 openings for every unemployed person.
“The labor market has yet to respond meaningfully to a rapid increase in interest rates,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
Outside the technology industry and interest-rate sensitive sectors like housing and finance, employers have been reluctant to lay off workers after struggling to find labor during the pandemic, and also because they are optimistic economic conditions will improve later this year.
An Institute for Supply Management report on Wednesday said manufacturers “are indicating that they are not going to substantially reduce head counts as they are positive about the second half of the year.”
Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury yields fell.
The U.S. central bank on Wednesday raised its policy rate by 25 basis points to the 4.50%-4.75% range, and promised “ongoing increases” in borrowing costs.
The claims report showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 11,000 to 1.655 million during the week ending Jan. 21. That partially revised the increases logged in the prior two weeks in the so-called continuing claims.
The claims data has no bearing on January’s employment report, scheduled for release on Friday, as it falls outside the survey period. According to a Reuters poll of economists, nonfarm payrolls likely increased by 185,000 jobs last month.
The economy created 223,000 jobs in December. The unemployment rate is seen rising to 3.6% from a more than 50-year low of 3.5% in December.
The raft of layoffs in the technology sector pushed up job cuts in January. A separate report on Thursday from global outplacement firm Challenger, Gray & Christmas showed job cuts announced by U.S.-based employers surged 136% to 102,943. That was the highest January total since 2009.
The technology sector accounted for 41% of the job cuts, with 41,829 layoffs. Retailers announced 13,000 job cuts, while financial firms planned to lay off 10,603 workers.
“It is difficult to completely square the seemingly contrasting messages from the jobless claims data and the Challenger job cuts data,” said Daniel Silver, an economist at JPMorgan in New York. “One possible explanation for the recent divergence is that people are getting laid off, but they are not filing for unemployment insurance. This may be because people are easily able to find new work or because severance payments are delaying eligibility for unemployment benefits.”
Despite labor market tightness, wage inflation is slowing and could continue doing so as a third report from the Labor Department showed worker productivity accelerating at a 3.0% annualized rate in the fourth quarter, the fastest in a year, after rising at a 1.4% pace in the third quarter.
Productivity fell at a 1.5% rate from a year ago and dropped 1.3% in 2022. But that was largely because of distortions caused by the COVID-19 pandemic. Productivity was up 5.1% from the fourth quarter of 2019.
As result, unit labor costs – the price of labor per single unit of output – increased at a 1.1% rate. That was the smallest gain since the first quarter of 2021 and followed a 2.0% pace of growth in the third quarter. Though unit labor costs rose at a 4.5% rate from a year ago, they were below their peak of 7.0% over the 12 months through the second quarter of 2022.
“The upshot is that, even without a rise in the unemployment rate and with job openings suspiciously resilient, the labor market no longer appears to be a significant source of inflationary pressure,” said Paul Ashworth, chief North America economist at Capital Economics in Toronto.