The Labor Department reported that the number of Americans filing new claims for unemployment benefits fell last week, indicating strength in the labor market that should continue to support the economy. Despite a slight slowdown in job growth due to Federal Reserve interest rate hikes, layoffs remain very low. Economists had forecasted 220,000 claims, but the actual number was 215,000, a decrease of 8,000 from the previous week. This data suggests that companies are holding on to their workers, as they have experienced difficulties finding labor during and after the COVID-19 pandemic.
The Federal Reserve has raised its policy rate by 525 basis points since March 2022 in an effort to slow demand in the economy. Officials noted in the minutes of their April 30-May 1 policy meeting that demand and supply in the labor market were gradually coming into better balance, though conditions remained tight. The Fed has kept its benchmark overnight interest rate in the range of 5.25%-5.50% since July, and financial markets are expecting the first rate cut to come in September. Despite concerns of a recession, labor market strength has helped the economy remain resilient.
The claims data covers the period during which the government surveyed employers for the nonfarm payrolls component of May’s employment report. While claims rose slightly between the April and May survey weeks, the number of people receiving benefits after an initial week of aid, a proxy for hiring, could offer more clarity on the state of the labor market. Continuing claims, which rose by 8,000 to 1.794 million during the week ending May 11, are currently at historically low levels. Economists and analysts do not believe there is any significant sign of the labor market unraveling.
Corporate economist Robert Frick stated that the labor market remains robust, and the slight decrease in claims indicates that the feared acceleration has not occurred. Companies are generally maintaining their workforce, and states like California and Indiana saw notable declines in filings for unemployment benefits. The economy added 175,000 jobs in April, and there is confidence that the labor market will continue to show resilience despite the ongoing impact of Federal Reserve policies aimed at controlling inflation. Chief economist Christopher Rupkey added that businesses have no reason to reduce their headcount further, as the economy is performing relatively well given the monetary restraints in place.
