The number of Americans filing new claims for jobless benefits dropped to a three-month low last week while layoffs fell 43 percent in December, pointing to a still-tight labour market that could force the Federal Reserve to keep increasing interest rates.
Labour market resilience was underscored by other data on Thursday showing private employers hired far more workers than expected last month. The reports suggested the economy ended 2022 on solid footing, despite a series of layoffs in the technology industry, as well in interest rate-sensitive sectors like finance and housing.
The jobs market resilience has raised the risk that the Fed, engaged in its fastest interest rate-increasing cycle since the 1980s as it tries to dampen demand to tame inflation, could boost its target interest rate above the 5.1 percent peak the US central bank projected last month and keep it there for a while.
“Fed officials are expecting a slowing in the job market given the big increase in interest rates last year,” said Stuart Hoffman, senior economic adviser at PNC Financial in Pittsburgh, Pennsylvania. “Right now, the labour market is too tight for the Fed, and job growth is too strong.”
Initial claims for state unemployment benefits decreased 19,000 to a seasonally adjusted 204,000 for the week ended December 31, the lowest level since the end of September. Economists polled by Reuters had forecast 225,000 claims for the latest week. Through the volatility of the year-end holidays, claims have remained at very low levels.
Unadjusted claims rose 5,703 to 275,552 last week. There were notable increases in claims in New Jersey, New York, Pennsylvania and Michigan, which offset decreases in Missouri, Texas and Kentucky.
Economists speculated that severance packages and still-strong demand for labour, which made it easier for laid-off workers to get another job, were keeping claims low. They also said companies are likely to slow hiring before embarking on layoffs after struggling to find labour during the pandemic.
The Labour Department reported on Wednesday that there were 10.458 million job openings at the end of November, which translated to 1.74 jobs for every unemployed person.
US stocks opened lower. The dollar rose against a basket of currencies. US Treasury prices fell.
Very tight labour market
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25 percent – 4.5 percent range, the highest since late 2007. Last month, it projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023.
Minutes of the Fed’s December 13-14 policy meeting, which were published on Wednesday, showed that officials noted that the labour market remained “very tight,” with a “few remarking that some business contacts reported that they would be keen to retain workers even in the face of slowing demand for output because of their recent experiences of labour shortages and hiring challenges”.
The claims report also showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 24,000 to 1.694 million in the week ending December 24.
A separate report from global outplacement firm Challenger, Gray & Christmas on Thursday showed US-based employers announced 43,651 job cuts in December, down 43 percent from November. The total was, however, 129 percent higher compared with December 2021 and was the second-largest monthly number announced in 2022.
For the whole of 2022, job cuts increased 13 percent to 363,824. It was still the second-lowest recorded annual total since Challenger began tracking the series in 1993.
A third report showed private payrolls increased by 235,000 jobs last month after rising by 182,000 in November. Economists had expected the ADP National Employment report would show an increase of 150,000 private jobs.
The reports were published before the release on Friday of the Labour Department’s more comprehensive and closely watched employment report for December.
According to a Reuters survey of economists, nonfarm payrolls are forecast to have advanced by 200,000 jobs. The economy created 263,000 jobs in November.
Source: Thanks AlJazeera.com