The Labor Department reported a decline in the number of Americans filing new claims for unemployment benefits last week, indicating underlying strength in the labor market that is poised to continue supporting the economy.
This marks the second consecutive weekly drop in claims, undoing most of the increase seen at the beginning of the month, which had pushed applications to a level last observed at the end of August. Despite the slowing job growth due to significant interest rate hikes by the Federal Reserve in 2022 and 2023, layoffs remain minimal.
Robert Frick, corporate economist at Navy Federal Credit Union, noted, “Claims settled down from the previous week, so the acceleration some had feared hasn’t come to pass. The labor market remains robust, and if claims are the canary in the coal mine for jobs, it has yet to develop a mild cough.”
Initial claims for state unemployment benefits fell by 8,000 to a seasonally adjusted 215,000 for the week ending May 18, compared to economists’ expectations of 220,000 claims. Unadjusted claims decreased by 5,663 to 192,017, with significant drops observed in California and Indiana.
Employers, in general, are retaining their workers after grappling with labor shortages during and after the COVID-19 pandemic.
The Federal Reserve has raised its policy rate by 525 basis points since March 2022 to temper demand in the economy. Minutes from the Fed’s April 30-May 1 policy meeting revealed officials’ assessment that demand and supply in the labor market were gradually balancing, albeit at a slower pace. However, they also acknowledged that conditions remained tight.
Despite market expectations of a rate cut in September, the Fed has maintained its benchmark overnight interest rate in the 5.25%-5.50% range since July. The strength of the labor market has contributed to defying recession predictions.
Next week’s data on the number of individuals receiving benefits after the initial week of aid, a gauge of hiring, could provide further insight into the labor market’s status. In April, the economy added 175,000 jobs.
Continuing claims, representing the number of people receiving benefits after the initial week, rose by 8,000 to a seasonally adjusted 1.794 million for the week ending May 11. However, these claims remain historically low.
Christopher Rupkey, chief economist at FWDBONDS, commented, “There is absolutely no sign that the labor market is unraveling in a major way. There is no reason for businesses to reduce the headcount at their firms any further because the economy continues to perform relatively well given the degree of monetary restraint the Fed has put in place to fight inflation.”
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