The number of Americans filing new claims for unemployment benefits increased less than expected last week, pointing to a still-tight labor market, while the economy rebounded faster than previously estimated in the third quarter.
Labor market strength, which also was underscored by some shrinking of unemployment rolls in early December after mostly expanding since October, raises the risk that the Federal Reserve could continue raising interest rates to a higher level and keep them there for a while as it tackles inflation.
“The economy isn’t quite as close to death’s door as markets had thought,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed may well need to raise interest rates even higher in 2023 because the economy isn’t slowing so upward price pressures may persist.”
Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 216,000 for the week ended Dec. 17, leaving the bulk of the prior week’s decline intact, Labor Department data showed on Thursday.
Economists polled by Reuters had forecast 222,000 claims for the latest week. Claims have swung up and down in recent weeks, but have remained below the 270,000 threshold, which economists said would raise a red flag for the labor market.
A raft of layoffs in the technology sector and interest-rate sensitive industries like housing have not had a material impact on claims. Unadjusted claims dropped 4,064 to 247,867 last week, amid big declines in California, Indiana, Ohio and Texas, which offset a large increase in Massachusetts.
Fed Chair Jerome Powell last week said “it feels like we have a structural labor shortage out there.” The central bank last week hiked its policy rate by 50 basis points to a 4.25%-4.50% range, the highest since late 2007. Fed officials expect the rate to rise to between 5% and 5.25% next year.
Hoarding workers
The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of December’s employment report.
Claims fell moderately between the November and December survey weeks, suggesting another month of solid employment gains. Job growth has averaged 392,000 per month this year. Data next week on the number of people on unemployment rolls will offer more clues on the state of hiring in December.
Economists believe that companies are likely to cut back on hiring before embarking on layoffs. Employers have been generally reluctant to lay off workers after struggling to find labor during the COVID-19 pandemic.
The claims report showed the number of people receiving benefits after an initial week of aid fell 6,000 to 1.672 million in the week ending Dec. 10, retreating from a 10-month high. The so-called continuing claims, a proxy for hiring, had trended higher since early October.
Some economists had viewed the steady rise in continuing claims as a sign of caution among businesses as they braced for a dreaded recession next year. But others had argued against reading this as evidence of easing labor market conditions, noting that most workers preferred not to start a new job during the holiday period and companies also temporarily close at this time.
Labor market strength is helping to underpin the economy by generating solid wage gains, which are contributing to higher consumer spending. A second report from the Commerce Department on Thursday confirmed the economy rebounded in the third quarter after contracting in the first half of the year.