Unemployment filings in the United States dropped last week, as fewer Americans filed for unemployment benefits while the labor market remains tight and inflation pressures continue to persist.
Applications for jobless claims for the week ended Jan. 21 fell to 186,000 from 192,000 the previous week, the Department of Labor reported on Jan. 26.
This was the first time in nine months that unemployment files have fallen below 200,000 in back-to-back weeks.
Jobless claims have generally served as a proxy for layoffs, which have been relatively low, since the economy recovered from the pandemic, which wiped out millions of jobs in the first months of 2020.
About 1.68 million people were receiving unemployment assistance for the week ended Jan. 14, an increase of 20,000 from the week before.
The four-week moving average of claims declined by 9,250, to 197,500, the first time the measure has been below 200,000 since May 2022.
Fed Expected to Raise Interest Rates as Job Market Remains Steady
The Labor Department reported a few weeks ago that American employers had hired 223,000 employees last month, a sign that the economy and the job market continues to grow, even as the Fed raises interest rates.The U.S. unemployment rate fell to 3.5 percent in December, a 53-year record low.
The labor market is closely monitored by the central bank, with the latest decline in job claims suggesting that the market remains tighter than desired. This tends to put pressure on wages, leading to higher costs for goods and services, causing the Fed to double down on its aggressive rate hike policy.
Recent news that Walmart raised its starting wage to the tune of 17 percent, in order to attract more workers in a tight labor market, has attracted analysts’ attention.
Lower Job Gains Data May Lead to a Slowdown by Year-End
Meanwhile, data from December’s jobs report suggested that the labor market may be cooling enough assist the Fed’s fight against high inflation, as the month witnessed the smallest hiring gains in two years.The news signaled the continuation of a hiring slowdown that began last year, while average hourly pay growth fell to its slowest pace in 16 months. A slowdown could reduce pressure on employers to raise prices as they try to offset higher labor costs.
The Fed’s December forecast report predicted slower growth and higher unemployment by 2024, with the unemployment rate projected to jump to 4.6 percent by the end of this year, which typically would reflect a recession.
Higher interest rates made it more expensive for consumers to take out mortgage and auto loans, along with a rise in credit card borrowing rates last year.
Mortgage rates rose to 6.15 percent at the end of last week, twice the level from where it was before the Fed began tightening the borrowing rates.
Higher mortgage rates have caused the housing market to shrink, with sales of existing homes facing 11 straight months of decline, according to The National Association of Realtors, on Jan. 20.
The Department of Commerce reported on Jan. 26 that the U.S. economy expanded at a 2.9 percent annual pace in the fourth quarter of 2022, ending the year with momentum, despite the pressure of higher interest rates and concerns of a looming recession.
While most of the labor market remains robust, layoffs have been more prevalent in the media and technology sectors, which have faced falling demand as inflation causes consumers to spend less.
Many tech companies are now scaling back from the era of expansion during the pandemic.
Treasury Secretary Remains Upbeat on the Economy
However, U.S. Treasury Secretary Janet Yellen, who was in Zambia, had a more optimistic note, saying that a strong labor market and easing inflation in the United States were “very hopeful signs,” Reuters reported.Six months of declining inflation, along with a drop in energy prices, shipping rates, goods prices, and the mitigation of most supply-chain problems, were a positive sign for the economy, Yellen told reporters.
She predicts that home rental prices will ease over next six months, which would help the housing market.
“We still have a labor market that is very tight. We’re seeing some signs of services inflation that need continued attention, but overall, I feel good that inflation is coming down,” Yellen said.
“I do think in the United States that we'll continue to see a strong labor market and progress on inflation, so those are very hopeful signs,” she continued.