Weekly Initial Unemployment Claims Fell, But Risks Linger

By Robert Hughes

Initial claims for regular state unemployment insurance fell by 19,000 for the week ending December 31^st, coming in at 204,000. The previous week’s 223,000 was revised down from the initial estimate of 225,000 (see first chart). The drop puts weekly claims at the lowest level since September 24^th despite having risen in nine of the last sixteen weeks. The four-week average of weekly initial claims fell to 213,750, down 6,750 for the week. That is the fourth consecutive decline and puts the four-week average at the lowest level since October 15^th (see first chart).

When measured as a percentage of nonfarm payrolls, claims came in at 0.145 percent for November, up from 0.140 in October and above the record low of 0.117 in March (see second chart). While the level of weekly initial claims for unemployment insurance remains very low by historical comparison, there have been some mixed signals recently, raising some concern.

Job cut announcements appear to be in a rising trend. Job cut announcements totaled 43,651 in December, below the 76,835 announced in November but still the second-highest level since January 2021 (see third chart). The three-month average hit 51,443 for December, well above the recent low of 17,520 in September 2021 and up sharply from 25,428 just three months ago. While the data continue to imply a tight labor market, the rising trend in job cut announcements is a concern. Furthermore, continued elevated rates of price increases, an aggressive Fed tightening cycle, and fallout from the Russian invasion of Ukraine remain risks to the economic outlook.

The number of ongoing claims for state unemployment programs totaled 1.572 million for the week ending December 17^th, a decrease of 17,417 from the prior week (see fourth chart). State continuing claims have been elevated over the last four weeks (see fourth chart).

The latest results for the combined Federal and state programs put the total number of people claiming benefits in all unemployment programs at 1.601 million for the week ended December 17^th, a decrease of 18,444 from the prior week.

While the overall low level of initial claims suggests the labor market remains tight, there are some mixed signals in the data. The tight labor market is a crucial component of the economy, providing support for consumer spending. However, persistently elevated rates of price increases already weigh on consumer expectations for the future, and if consumers lose confidence in the labor market, they may significantly reduce spending. The outlook remains highly uncertain.

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