The number of new applications for unemployment benefits increased by 14,000 last week to 262,000, the highest level in months.
The news bolsters fear the economy is nearing or has already tumbled into a recession. Rising jobless claims, a proxy for layoffs, are a sign that the labor market may be facing some turbulence, although the figures are still low by historical standards.
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Around this time in August 2021, new claims were averaging over 400,000 per week. The number of jobless claims bottomed out at 166,000, tallied in mid-March, the lowest figure since 1968.
While the number of jobless claims isn’t anywhere near where it was during most of the pandemic, it has trended upward in recent weeks.
A counterbalance to the argument that the economy is in a recession, though, is that the economy is adding jobs in huge numbers and the unemployment rate is low. The economy added 528,000 jobs in July. The unemployment rate, which is taken from a different data source and a different report than Thursday’s jobless claims numbers, also unexpectedly fell to 3.5%, matching the ultralow level it was at prior to the pandemic.
Still, rising jobless claims could be a clue that the tight labor market may be slowing in response to the Federal Reserve aggressively jacking up interest rates. Driving up interest rates naturally slows demand and can result in recessionary conditions.
In June, following a two-day meeting, central bank officials announced that the Fed would increase its interest rate target by a whopping three-quarters of a percentage point. The Fed then conducted another hike of 75 basis points last month in response to towering inflation.
There are some signs the economy has entered or is headed toward a recession. In addition to the growing number of jobless claims, GDP growth fell at a 0.9% annualized rate in the second quarter, a preliminary estimate from the Bureau of Economic Analysis recently showed. The report marks the second straight quarter of declining inflation-adjusted GDP — a situation commonly used to define a recession.
Government officials and economists use recession designations provided by the National Bureau of Economic Research, a private academic group. The bureau doesn’t provide a narrow statutory definition to declare a recession. Rather, it relies on the judgment of a group of economists.
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The group broadly defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
“As the rest of 2022 unfolds, I think we’re going to realize that we are in a recession. It’s just a very different sort of recession than we’ve ever been in before, much like the stagflation of the 1970s and early 80s was a recession like we’ve never seen before,” Victor Claar, an economics professor at Florida Gulf Coast University, told the Washington Examiner.
