The number of new applications for unemployment benefits dropped by 5,000 to 232,000 last week, the lowest in two months, the Labor Department reported Thursday, an encouraging sign that will assuage fears that the labor market is softening.
Falling jobless claims, a proxy for layoffs, are a sign that 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 four-week moving average of claims has dropped by 4,000 to 241,500, low enough to keep the unemployment rate on a downward trajectory.
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While some economists say there are indications that the economy is on the brink of recession, particularly following two consecutive quarters of negative GDP growth, the labor market has remained strong.
“These timely data show that labor market conditions are not weakening dramatically, with layoffs not yet picking up in a sustained way in response to Fed tightening,” noted Rubeela Farooqi, chief U.S. economist for High Frequency Economics.
The economy added a robust 528,000 jobs in July, and the unemployment rate also fell to 3.5%, matching the ultralow level it was at prior to the pandemic.
All eyes are on Friday’s August jobs report, which is expected to show significantly less job growth than in July, although the unemployment rate is likely to remain in the same ballpark.
Falling jobless claims is a clue that the labor market remains tight in the face of the Fed aggressively jacking up interest rates. Driving up interest rates slows demand and can result in recessionary conditions.
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The Fed has been hiking rates aggressively and tightening its monetary policy to battle the country’s surging inflation. The central bank hiked rates by half a percentage point in May and then took the even more aggressive step of hiking rates by three-fourths of a percentage point in June and July.
Some good news in advance of Friday’s employment report is that the number of job openings unexpectedly ticked up in July after three straight months of declines. Openings across all sectors increased to 11.2 million in July, up slightly from 10.7 million the month before, according to data released on Tuesday by the Bureau of Labor Statistics.
