Initial jobless claims drop further

REAL ECONOMY BLOG | March 23, 2023

Authored by RSM US LLP

New claims for unemployment benefits inched lower than expected for the second month in a row last week, continuing to signal a tight labor market despite recent bank failures.

Claims fell by 1,000 to 191,000, remaining below the pre-pandemic average and below expectations of a slight increase to 197,000.

Usually, a low claims number is associated with fewer layoffs. But these days, a significant gap between the demand and supply of labor continues to keep new claims low even when layoffs have picked up.

What has been clear so far is that layoffs, which happen in the upstream market, have been offset by more hiring in the downstream market, where demand for talent remains strong.

The claims data, released by the Labor Department on Thursday, was for the week ending March 18, which was the last week that will be reflected in the March jobs report coming out in two weeks. So far, everything seems to point toward another strong month of job gains.

The Federal Reserve’s decision to raise its policy rate by 25 basis points on Wednesday in the midst of a banking crisis should start to make more sense in the following months as job and inflation data will force the Fed to prioritize price stability again.

The takeaway

We do not expect any major changes to the claims number in the next few months. But as our forecast shows an elevated chance of a recession in the second half of the year, new claims are expected to show steep increases.

That is the nonlinearity of the economy mentioned by Federal Reserve Chairman Jerome Powell in his comments on Wednesday, which should surprise no one.