The number of new applications for unemployment benefits dropped by 16,000 to 193,000 last week, the lowest in five months, the Labor Department reported Thursday.
Falling jobless claims, a proxy for layoffs, is a sign the economy is still adding jobs despite the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation.
The number of new claims for unemployment isn’t near where it was during most of the pandemic and has not risen to a rate that would suggest an imminent recession.
“We can’t keep getting job layoffs data like these and continue to warn a recession is right around the corner. The recession clouds aren’t just lying offshore, they are starting to break up, and the sun is shining through. You can’t have a recession without rising unemployment,” said Chris Rupkey, chief economist at FWDBONDS.
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Rising jobless claims would be one clue that the tight labor market may be slowing in response to the Fed aggressively jacking up interest rates. Driving up interest rates slows demand and can result in recessionary conditions.
The Fed has been on a historic rate hiking kick. This 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 synonymous with three simultaneous rate hikes and is the third such increase in just four months.
Even despite the rate hikes, the labor market has shown resiliency. The economy added 315,000 jobs in August, and the unemployment rate ticked up slightly to 3.7%, near a five-decade low and around the ultralow level it was at right before the pandemic.
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Still, Fed Chairman Jerome Powell has warned that the tight labor market isn’t likely to last and that there will be some economic “pain” as higher rates begin to cut into the country’s economic growth and jobs.
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell recently said. “Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
