Jobless claims decline in encouraging sign for ‘soft landing’ for economy

The number of new applications for unemployment benefits dropped by 12,000 to 214,000 last week, the Labor Department reported Thursday.

Falling jobless claims are a sign that layoffs are rare and the economy is adding jobs despite the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation.

“The whole world seems to be betting on a U.S. recession, but so far, the labor market refuses to support such a negative outlook for the economy,” noted Christopher Rupkey, the chief economist for FWDBONDS.

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For a lengthy stretch between early August and the middle of September, jobless claims defied expectations and remained low. Since the start of October, though, they have been above 210,000.

Thursday’s number of new claims for unemployment isn’t near where it was during most of the pandemic and is not at a rate that would suggest an imminent recession.

The Fed has been aggressively jacking up interest rates to tame inflation. Driving up interest rates slows demand and can result in recessionary conditions.

Last month, the central bank conducted a monster rate hike to the tune of three-quarters of a percentage point, or 75 basis points. It was the third such increase in just four months.

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Even despite the rate hikes, the labor market has shown resiliency. The economy notched 263,000 new jobs last month, according to the Bureau of Labor Statistics. Monthly job growth has averaged 420,000 so far in 2022, a strong pace at this stage of the cycle.

The strong labor market, coupled with higher-than-expected inflation, raises the likelihood that the central bank will keep up with the monster rate hikes, something that economists are increasingly fearing could knock the economy into a recession.

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