Weekly jobless claims declined to their lowest levels since September 2022, signaling a tighter U.S. labor market at a time when the Federal Reserve is considering pivoting on monetary policy.
The number of first-time unemployment claims fell by 16,000, to a lower-than-expected 187,000 for the week that ended on Jan. 13, according to new data from the Department of Labor. This was the lowest reading since Sept. 24, 2022, and the second lowest since September 1969.
Unadjusted initial claims figures, which don’t insert seasonal factors into the numbers, dropped by about 30,000, to roughly 290,000.
Continuing jobless claims, a measurement of individuals receiving unemployment benefits, tumbled for the third consecutive week, to a three-month low of 1.806 million.
The four-week average, which removes the week-to-week volatility, dropped to an 11-month low of 203,250.
Economists noted that the measurement of initial applications for unemployment benefits is usually skewed following the holiday season. Still, many observers noted that layoffs are minimal and don’t signal an upward trend.
In December 2023, U.S.-based firms announced nearly 35,000 layoffs, down by 24 percent from November 2023 and 20 percent from the same time in the previous year, Challenger Report data highlighted.
“Layoffs have begun to level off, and hiring has remained steady as we end 2023,” Andy Challenger, workplace and labor expert and senior vice president of Challenger, Gray & Christmas, Inc., said in last month’s report. “That said, labor costs are high. Employers are still extremely cautious and in cost-cutting mode heading into 2024, so the hiring process will likely slow for many job seekers and cuts will continue in the first quarter, though at a slower pace.”
Earnings Falling Short of Inflation
Real (inflation-adjusted) median usual weekly earnings still haven’t recovered from the all-time high posted in the second quarter of 2020, according to new data from the Bureau of Labor Statistics (BLS).
In the fourth quarter of 2023, median weekly earnings totaled $371, down by 5.6 percent from the April-to-June span in 2020.
Real hourly wages are also down by 2.6 percent from February 2021.
A closer look at the BLS figures shows that the bottom half of workers have maintained negative real income growth over the past three years.
“Fresh data from BLS reiterate why Americans feel so sour about the economy: incomes haven’t kept up with inflation,” Heritage Foundation economist E.J. Antoni wrote on the social media platform X, formerly known as Twitter. “Those larger paychecks buy less; people now have two to three jobs to afford what they could three years ago.”
Last month, the number of workers employed at two or more jobs advanced to a record high of 8.565 million.
Since the COVID-19 pandemic, Americans’ purchasing power has cratered by 18 percent.
A Slowing Labor Market
Following the release of the December 2023 jobs report, various other metrics have pointed to a moderating labor market.
Labor conditions appear to be cooling in nearly all U.S. regions, according to the Federal Reserve’s monthly Beige Book.
The central bank’s survey, consisting of information from business contacts collected before Jan. 8, revealed several developments in the broader economy. This included easing wage pressures, lower turnover rates, a larger pool of applications, increased consumer “price sensitivity,” and business optimism for future growth.
The Institute for Supply Management’s (ISM’s) employment sub-index in the Services Purchasing Managers’ Index (PMI) confirmed contraction in December 2023.
Likewise, the ISM’s Manufacturing PMI showed receding employment volumes. In 2023, the U.S. economy added just 1,000 manufacturing jobs.
Many economists warn that the U.S. economy could witness a slowdown, be it in the gross domestic product (GDP) growth rate or job gains.
“In our latest Economic Outlook, we detail that we expect real gross domestic product growth to slow in 2024 versus the solid 2.5 percent growth posted in 2023. We expect GDP growth in year-over-year terms to dip under 1 percent by the second half of 2024,” said Preston Caldwell, chief U.S. economist at Morningstar Research Services.
“Slowing GDP growth in 2024 will compel firms to slow hiring in order to avoid deteriorating profits. As economic growth reaccelerates over 2025–26, we expect a resumption of the labor market recovery to follow.”
According to the Federal Reserve’s Summary of Economic Projections (SEP) in December 2023, the unemployment rate is expected to rise to 4.1 percent this year and remain at this level in 2025 and 2026.
Soft Landing vs. Premature Rate Cuts
The Fed signaled three cuts to the benchmark federal funds rate in the SEP data last month. Since then, various central bank officials have tamped down the dovish talk. But the futures market still thinks that the Federal Open Market Committee (FOMC) will pivot on monetary policy and pull the trigger on multiple rate reductions this year.
A majority of investors anticipate rate cuts could happen as early as the March FOMC policy meeting. However, these expectations have diminished in the face of hotter-than-expected inflation data and remarks from Fed officials who have championed slower easing.
While speaking virtually with the Brookings Institution, Fed Gov. Christopher Waller recommended lowering interest rates “methodically and carefully.”
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” Mr. Waller said. “In many previous cycles, they cut rates reactively and did so quickly and often by large amounts. This cycle, however, I see no reason to move as quickly or cut as rapidly as in the past.”
Despite a declaration from the White House that the U.S. economy has achieved a soft landing, some market analysts wonder whether the question to be asking is whether it’s premature to cut interest rates.
“Just as the Fed is bracing for rate cuts, the labor market is at its strongest point in 50+ years,” The Kobeissi Letter, a global capital markets commentary organization, wrote on X.
“The labor market is secularly tight, and the Fed is about to add more fuel to the fire. Is this a soft landing or premature rate cuts?”
With the consumer price index (CPI) unexpectedly rising to 3.4 percent last month, “the fight against inflation is still not over,” it stated.
Looking to the next CPI print, the Federal Reserve Bank of Cleveland’s Nowcasting model estimates the annual inflation rate will slow to 3 percent.
From The Epoch Times
