Continued Claims to Lowest Level in Decades
- Initial claims for unemployment insurance rose in the week ending January 8 to 230,000. At this point it is unclear if the increase was due to the omicron variant, or just noise.
- State continued claims fell in the week ending January 1 to their lowest level since 1973.
- The labor market is strong in early 2022 and should continue to improve over the year.
- The omicron variant and weak labor force growth are downside risks to the outlook.
Initial claims for unemployment insurance rose by 23,000 in the week ending January 8, to 230,000. This is the highest level of claims since mid-November, and the biggest one-week increase in claims since late November. Claims for the previous week were unrevised at 207,000. The four-week moving average of claims, which smooths out some of the volatility, was 210,750 in the week ending January 8, up from 204,500.
The increase in claims in the week of January 8 could be an indication that hiring has softened in early January because of the omicron variant. On the other hand, there can be big week-to-week variations in claims, especially around holidays. It will take a couple of weeks to determine if the increase in claims reflects a softening labor market or is mere noise. Even with the increase, claims are still just slightly above their pre-pandemic level of around 215,000 per week. Looking through the week-to-week variations, initial claims for unemployment insurance in early 2022 are stable at slightly above 200,000 per week, slightly higher than their lowest levels since the late 1960s, and slightly below their pre-pandemic level.
Initial claims jumped to more than 6 million in April of 2020 as the pandemic came to the U.S. They then fell quickly to around 900,000 per week by early August 2020, then stabilized at between 700,000 and 900,000 between August 2020 and March 2021. Claims fell gradually but steadily in the spring of 2021 before stabilizing at around 400,000 per week, and then started to decline again in August 2021, with an especially large decline in the second half of November. At the end of 2021 they settled in at around 200,000 per week.
The total number of people receiving benefits under regular state unemployment insurance programs (continued claims) fell by a sharp 194,000 in the week ending January 1, to 1.559 million; claims for the previous week were revised down by 1,000 to 1.753 million. This is the lowest level for state continued claims since 1973. The four-week moving average of continued claims fell to 1.7215 million, down 77,000 from the previous week. This is the lowest level for the four-week moving average since early March 2020, before the pandemic hit the labor market. The four-week moving average of continued claims has fallen every week but once since late May 2021 as unemployed workers leave the rolls, either because their benefits have expired or because they have quickly found a new job. After peaking at more than 23 million in May 2020, state continued claims have now recovered to their pre-pandemic levels.
The latest data on UI claims are mixed. Initial claims rose slightly in early January, but it is unclear whether that was due to omicron or was merely volatility tied to the holidays. Continued claims, which are reported one week behind initial claims, fell to their lowest level in almost five decades at the end of 2021. Given the upcoming Martin Luther King holiday, it could take a few weeks to figure out if initial claims are indeed rising due to omicron.
Even so, both initial and continued claims are extremely low in late 2021 and early 2022, consistent with a strong labor market. The unemployment rate fell to 3.9% in December from 4.2% in November, down from a peak of 14.8% in April 2020 and not too far above the pre-pandemic rate of 3.5%. Headline job growth was soft in December at 199,000, but job growth has seen big upward revisions in recent months, and the December number is likely to be revised higher over the next couple of months. Other labor market indicators point to a very strong job market.
In particular, businesses continue to report big difficulties in hiring and wage growth in 2021 was very strong as firms compete for employees. There were more than 2 million fewer people in the labor force at the end of 2021 than there were before the pandemic; PNC expects many, but not all, of those people to return to the job market over the next year, allowing for continued solid hiring.
PNC expects job growth to average better than 300,000 per month over the course of 2022, well above the pre-pandemic pace of hiring, but down from average monthly job growth of 540,000 in 2021. However, risks to the labor market are to the downside, including the omicron variant and weak labor force growth.
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