Initial jobless claims—the number of Americans filing new applications for unemployment benefits—rose at a tepid pace last week, indicating “minimal stress” in the U.S. labor market, according to Jeffrey Roach, chief economist for LPL Financial.
According to the Department of Labor, initial jobless claims rose by 6,000, to 223,000, for the week ending Jan. 18, the highest in six weeks.
The latest reading came in slightly higher than the consensus forecast of 220,000.
Layoffs were mainly seen in three states: Michigan (14,985), California (12,731), and Texas (11,439). New York registered a more than 15,000-claim decline, followed by Washington state (3,877) and Wisconsin (3,830).
Economic observers are waiting for the fallout from the California wildfires to appear in the statistics in the coming weeks.
AccuWeather, a weather-forecasting model agency, projects that the total damage and economic loss from the wildfires could be as high as $275 billion, according to a statement from the agency.
Continuing jobless claims—the number of people currently receiving unemployment benefits—increased by 46,000 to 1.899 million, suggesting it is taking longer to find employment.
This came in higher than the market projection of 1.86 million.
Last month, the Bureau of Labor Statistics reported that 1.6 million people had been unemployed for at least 27 weeks, representing more than 22 percent of all unemployed people.
The four-week average, which removes week-to-week volatility, edged up to 213,500 from 212,750.
Market watchers have been monitoring the weekly data to spot trends in company layoffs to lower payroll costs. In 2024, employers announced more than 762,000 layoffs, up 5.5 percent from the previous year, according to data from global recruitment company Challenger, Gray, and Christmas. Except for 2020, this represented the highest number since 2009.
Still, the labor market is tight, though some industries are slowing hiring, Roach said.
“The weekly claims data suggest minimal stress in job markets,” Roach said in a note emailed to The Epoch Times. “As long as wage growth outpaces the rate of inflation, the economy will chug along, and the Fed will not cut rates as much as expected only a few months ago.”
The State of the US Labor Market to Begin 2025
Wage growth has stalled over the past year, as average hourly earnings slipped below 4 percent last month. Workers’ challenges are that their paychecks have not recovered from the inflation bomb that occurred shortly after the COVID-19 pandemic.
Bankrate’s annual Wage-to-Inflation Index suggests that Americans’ paychecks will recover from post-crisis inflation by the end of the second quarter of this year.
In December 2024, real (inflation-adjusted) hourly earnings tumbled by 0.2 percent, and real average weekly earnings slipped by 0.1 percent.
Real hourly compensation remains down 3 percent since January 2021.
Elevated inflation pressures and a robust labor market were among the factors contributing to the Federal Reserve’s decision to reduce the number of interest rate cuts in 2025. The updated December 2024 Summary of Economic Projections, a quarterly survey of monetary policymakers’ expectations for economic data and policy, signaled that officials anticipate just two quarter-point rate cuts this year, down from the initial estimate of four.
Federal Reserve chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington on Nov. 7, 2024. AP Photo/Mark Schiefelbein
The futures market expects the next quarter-point reduction in the benchmark federal funds rate—the central bank’s target rate for influencing economic activity—to occur in June or July, according to the CME FedWatch Tool.
Federal Reserve Chair Jerome Powell told reporters at the press conference after last month’s meeting that inflation risks led officials to downgrade their forecasts.
“It’s kind of commonsense thinking that when the path is uncertain, you go a little bit slower,” Powell said after the policy-setting Federal Open Market Committee (FOMC) cut rates by 25 basis points. “It’s not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”
Indeed, inflation has crept back up in recent months, with the annual rate rising for three straight months, to 2.9 percent.
The Federal Reserve Bank of Cleveland’s Inflation Nowcasting model suggests that the rebound in inflation may have peaked. The regional central bank expects consumer price index inflation to slip to 2.8 percent next month.
However, consumers expect an inflation revival over the next 12 months. The University of Michigan’s Consumer Sentiment Index revealed that year-ahead inflation expectations rose to 3.3 percent in January from 2.8 percent in December 2024, the highest reading in eight months.
Higher living costs are creating a “paycheck-to-check nation,” says Mark Hamrick, the senior economic analyst at Bankrate.
A new survey suggests that due to inflation, 68 percent of Americans have saved less for unforeseen circumstances. Fewer than half blame high interest rates or changes to their income or employment status for their saving less for a rainy day.
The research also showed that 69 percent of Americans are worried they would be unable to cover immediate living expenses in the next month should they lose a primary source of household income.
“Fewer Americans have the equivalent of a financial safety net to cover inevitable unexpected expenses, despite low unemployment and steady growth,” Hamrick said, “This is one of the consequences of elevated prices stemming from inflation, the impacts of which are still being felt.”
But while market watchers believe households are in good financial shape amid a resilient labor market, economists will examine next month’s annual adjustments to job numbers from the Bureau of Labor Statistics (BLS).
“The annual revisions to the household survey to be published in February may show an upward revision to the unemployment rate as they incorporate more accurate data on the number of newly arrived immigrants in the workforce, who tend to have higher unemployment and higher labor force participation than longer-established immigrants or native-born Americans,” Bill Adams, chief economist for Comerica Bank, said in a note emailed to The Epoch Times.
In August 2024, the BLS confirmed that employment growth was weaker than first reported. Its preliminary annual benchmark review of employment data showed 818,000 fewer jobs from April 2023 to March 2024.
Based on the Philadelphia Fed’s U.S. state employment data examination, the February report will likely show the same thing. Early estimates indicated lower employment levels in 25 states and more minor revisions in 23 others.
Andrew Moran
Author
Andrew Moran has been writing about business, economics, and finance for more than a decade. He is the author of "The War on Cash."
