Important points
Unemployment claims fell last week to the lowest level since May.
Despite other labor market data showing a deterioration in the job market, with fewer job openings and higher unemployment rates, fewer people are applying for unemployment benefits.
Possible reasons for the disconnect include a mild hurricane season and companies holding on to workers for fear of being short-staffed even when the economy recovers.
Something strange is happening in the labor market. Employers are cutting back on hiring, the unemployment rate is rising, and the number of new unemployment insurance claims is on the decline.
The Labor Department said Thursday that 218,000 people filed new claims for unemployment benefits last week, down from 222,000 the week before. That was the lowest level since May and lower than the 223,000 claims forecasters had expected, according to a survey of economists by Dow Jones and the Wall Street Journal. .
As other labor market indicators weaken, the number of insurance claims remains low and is even declining. Unemployment rates have risen to levels not seen since 2021, and employers have cut job openings below pre-pandemic levels.
Assessing the strength of the job market has taken on new importance in recent months as Federal Reserve officials move to cut interest rates to stimulate the economy and prevent a serious spike in unemployment. .
The Fed is focused on jobs
Signs of rising unemployment could put pressure on the Fed to further accelerate its influential rate cuts in coming months and lower borrowing costs to spur spending. But unemployment claims are nowhere to be seen, remaining low by historical standards.
High interest rates on all types of loans, a result of the Fed’s anti-inflation rate hike campaign since 2022, are actually straining employers financially, so why is the long-predicted wave of layoffs still occurring? There is room for debate as to whether this has been achieved.
So why do unemployment claims remain low?
Economists have proposed several explanations for why unemployment claims remain low.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said technical factors related to how the agency adjusts to seasonal layoff patterns are keeping the number of applications artificially low. In addition, a mild hurricane season resulted in fewer weather-related layoffs than in previous years.
Another possible explanation is that employers are continuing to protect their employees through the storm so that they don’t become understaffed when interest rates fall and the economy picks up again.
“Employers are determined to keep their employees employed and, if necessary, are willing to cut hours to reduce labor costs,” said Robert Frick, corporate economist at Navy Federal Credit Union. Robert Frick, a business economist at Navy Federal Credit Union, said in a commentary earlier this month.
