Buried beneath the attention focused on the US Consumer Price Index release and Middle East events, a low-tier weekly figure highlights the enduring strength of the American job market, despite 11 rate hikes in 21 months.
The data in question pertains to the weekly first-time claims for US unemployment benefits, which has evolved from an almost overlooked statistic into a significant early indicator of labor market changes over the past four years.
The interpretation of this data remains somewhat controversial. Is it merely indicating fluctuations in claims, or is it revealing the underlying strength or weakness of the labor market, or perhaps a combination of both? It can be likened to a thermometer, measuring whether the market is hot, mild, or cool, with the latter scenario having been absent for over two years.
Examining the latest data from the first week of 2004, it reveals an unexpected, albeit insignificant, decline in the week ending January 6th. The US Labor Department reported that initial jobless claims had decreased to 202,000, down 1,000 from the revised figure of 203,000 for the final week of 2023. Economists had anticipated an increase in jobless claims to 210,000, compared to the originally reported 202,000 for the previous week.
Although the final week of December saw a two-month low, the slight decrease in claims during the week ending January 6 confirms that despite discussions of a softening job market and significant layoffs in technology and media, little has changed.
In addition, the Labor Department’s report on Thursday indicates that the less volatile four-week moving average also dipped slightly to 207,750, down 250 from the revised average of 208,000 from the previous week. Continuing claims, which measure the number of people receiving ongoing unemployment benefits, also experienced a more substantial drop of 34,000, reaching 1.834 million in the week ending December 30th. The four-week moving average for continuing claims decreased to 1,862,250, down 8,000 from the revised average of 1,870,250 in the previous week.
Looking back to March 2022 when the Fed began tightening monetary policy, the number of benefit claims was nearly the same—227,000 in the middle of that month, up from 216,000 in the first week of March, despite a more than 3% increase in the size of the US labor force over the two years leading to December.
In December 2021, during the current cycle’s all-time low, there were 188,000 claims, with a jobless rate of 3.9% (3.7% in December). The US civilian labor force grew by over 5.1 million in the two years leading to December, despite multiple rate hikes, without a significant increase in jobless claims.
This data reinforces the underlying message from the December jobs report, which showed a larger-than-expected increase of 216,000 jobs, compared to market estimates of around 170,000 jobs. However, the report also revealed notable downward revisions to job growth in October and November, with employment increases revised to 105,000 jobs and 173,000 jobs, respectively, reflecting a net downward revision of 71,000 jobs.
While inflation data remains important to the Fed, particularly the monthly PCE inflation figures favored by the central bank, the sustained low level of jobless benefit claims and reasonable new job creation are likely to keep monetary policy unchanged. Despite the release of the CPI causing market expectations of a March rate cut to rise to 72%, comments from two Fed members made it clear that monetary policy will remain on hold for a longer period.
Hence, the ongoing strength in jobless claims may be a minor data point, but it currently plays a small yet significant role in the US economic landscape.