Initial jobless claims drop to lowest level since May

REAL ECONOMY BLOG | September 08, 2022

Authored by RSM US LLP

The labor market showed continuing strength as last week’s new filings for jobless claims fell for the fourth week in a row, tempering recession concerns and bolstering the case for the Federal Reserve to stay aggressive in its interest rate increases.

New claims dropped to 222,000, the fewest since May, according to government data released Thursday, as fewer companies came out with layoff announcements than a month before.

The upward trend of new claims in recent months has begun to flatten out, with the 13-week moving average falling for the first time since April.

Outsized job vacancies, the transformation of the workforce during the pandemic and demographic shifts remained significant tailwinds to keep layoffs near a record low.

While those factors should concern the Federal Reserve in its fight against inflation, the jobless claims data was in line with our estimate of a relatively small number of job losses that the economy would have to sacrifice to get inflation down.

New jobless claims will add to the case for another 75-basis point hike this month as the Fed assesses good job news as bad inflation news.

But even with an aggressive Fed, jobless claims are still far below the 350,000 threshold that often signals recession. Our base case shows that the chance of a recession remains low this year, and picks up only by the end of next year.

Inside the data, continuing claims for the week ending Aug. 27 increased by 35,000 to 1.47 million, remaining low compared to the historical standard.