The number of new applications for unemployment benefits unexpectedly dropped by 15,000 to 190,000 last week, the Labor Department reported Thursday, an encouraging sign for the economy.
Falling jobless claims, a proxy for layoffs, are a sign the labor market is resilient despite the Federal Reserve’s historic effort to tighten monetary policy to slow economywide spending and drive down inflation. The last time jobless claims were this low was September of last year.
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“While layoffs from high-profile firms make the headlines, plenty of firms are desperate for more workers, especially tech workers,” said Robert Frick, a corporate economist at Navy Federal Credit Union. “Those workers are in high demand from the auto industry to the Department of Veterans Affairs to not-for-profits.”
The weekly jobless claims number has been closely watched over the past year or so, given the Fed’s aggressive pace of rate hikes. The report comes after the central bank raised rates by half of a percentage point in December and is likely to increase the rate again at the end of this month.
The economy added 223,000 more jobs in December, the Bureau of Labor Statistics reported in the monthly employment situation report last week, a sign of strength in the labor market. The number of people applying for jobless claims each week, a forward-looking indicator of the labor market weakening, also shows no evidence of seriously increasing.
While the number of new jobless claims has remained low enough to avert fear that the country is already in the throes of a recession, most economists anticipate that the U.S. economy will enter a Fed-induced recession at some point in the new year. That is because rate hikes can take a while to filter through the broader economy and create recessionary conditions and job losses.
It is expected that as the rate hikes begin to ripple across the economy, jobless claims begin to tick up, and then monthly jobs reports will begin to turn negative.
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Meanwhile, inflation is beginning to come down with the rate hikes.
Inflation, as measured by producer wholesale prices, slowed to 6.2% for the year ending in December, according to a report from the Bureau of Labor Statistics. That year-over-year inflation rate was down from 7.1% the month before, lower than what forecasters expected. Additionally, inflation, as measured by the consumer price index, has also fallen to 6.5%.
