The US labor market continues to display unexpected strength as the year closes, with new applications for unemployment benefits dropping to their lowest level in eight months.
This significant decline in jobless claims points to a continued trend of low layoffs, reinforcing the notion of a robust job market that is seemingly impervious to economic headwinds.
This data, released by the Labor Department on Thursday, arrives amidst a flurry of positive economic indicators, including strong consumer spending, and serves as further rationale for the Federal Reserve’s cautious approach to interest rate cuts in the coming year.
Curbing the Fed’s appetite for aggressive rate cuts
“A stable job market will squelch the Fed’s appetite for cutting rates aggressively amid nagging services inflation,” Jeffrey Roach, chief economist at LPL Financial, told Reuters.
The latest report revealed that initial claims for state unemployment benefits fell by 9,000, reaching a seasonally adjusted 211,000 for the week ending December 28th.
This figure marks the lowest level since April and significantly undercuts economists’ projections of 222,000 claims for the week.
While there were significant drops in unadjusted claims in states like California and Texas, a few states including Michigan, New Jersey, Pennsylvania, Ohio, Massachusetts, and Connecticut saw an increase in filings.
The four-week moving average of claims, which provides a clearer picture of the underlying trend, also decreased, falling to 223,250.
Job market remains resilient amidst year-end volatility
Although jobless claims tend to fluctuate around the year-end holidays, the underlying trend remains consistent with a labor market that is slowly moderating but still firmly holding its ground, and this deceleration is not a sign of a broader economic downturn.
In response to the news, the dollar strengthened against a basket of currencies, while US stocks were poised for a positive opening.
The Federal Reserve, after implementing three consecutive rate cuts, lowered its benchmark overnight interest rate to a range of 4.25%-4.50%.
However, the central bank has signaled a more cautious stance on future cuts, projecting only two rate reductions this year, as opposed to the four that were forecasted in September, given the job market’s and economic resilience.
Long-term unemployment and hiring hesitancy
While the job market is supported by low levels of layoffs, employers are exhibiting a reluctance to significantly increase hiring.
This hesitancy stems partly from the extensive hiring seen during the recovery from the Covid-19 pandemic, leading to a situation where some workers who have lost their jobs are facing extended periods of unemployment.
The median duration of unemployment had approached a three-year high in November.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased by 52,000 to a seasonally adjusted 1.844 million during the week ending December 21st, according to the claims report.
Jobless claims data sets stage for key employment report
Economists suggest that some of the persistent elevation in continuing claims may be attributed to difficulties in adjusting for seasonal fluctuations in the data.
They also project that the unemployment rate will remain steady at 4.2% in December.
The government is scheduled to release its closely watched December employment report next Friday, which will provide further insights into the overall health of the labor market and economic trajectory.
The post US jobless claims hit 8-month low: key numbers you need to know appeared first on Invezz
