• Initial claims for unemployment insurance fell by 3,000 in the week ending January 28, 2023, to 183,000. The four-week moving average fell by 6,000 to 192,000.
• Continuing claims fell by 11,000 to 1.655 million in the week ending January 21, 2023.
• PNC’s baseline forecast is for a mild recession starting in the spring of 2023.

Initial claims for unemployment insurance fell again by 3,000 to 183,000 in the week ending January 28, 2023, from an unrevised 186,000 in the previous week. This is the lowest level of initial claims since early-April 2022. The four-week moving average of claims for the week ending January 28, 2023, which smooths out some of the volatility in weekly claims especially during holiday times, fell by 6,000 to 192,000 from the previous week’s unrevised 198,000. The four-week moving average is back down to its lowest level since early-May 2022.

Continuing claims fell by 11,000 to 1.655 million in the week ending January 21, 2023, from an unrevised 1.666 million in the previous week. The four-week moving average of continuing claims for the week ending January 21, 2023, also fell by 11,000 to 1.652 million. The insured unemployment rate held steady at 1.1% in the week ending January 21, 2023.  Continuing claims have increased somewhat in recent weeks but still remain near their lowest level in more than 50 years. There have been a growing number of layoff announcements, especially by tech companies, in the past month which should push initial claims higher later this winter. With the job market very strong, laid-off workers are getting quickly rehired.

Federal Reserve officials are expecting a slowing in the job market given the big increase in interest rates last year; the hope is that this will bring down inflation that is well above the central bank’s 2% objective. But the labor market remains strong. Although job growth has slowed over the course of 2022, it remained well above its pre-pandemic pace, and the labor market is extremely tight. The Fed would welcome a more substantial slowing in job growth from the average monthly gains of 247,000 payroll jobs in the final three months of 2022. We expect January 2023 payroll job growth of close to 175,000 and a slight rise in the unemployment rate to 3.6% to be announced tomorrow morning.  

After yesterday’s funds rate hike of 25 bps by the FOMC, we expect one last 25 bps funds rate hike to a “terminal” target range of 4.75-5.00% at the March 22, 2023, FOMC meeting.  We expect the FOMC will hold the funds rate steady until December 2023 when the first of many rate cuts will start as the inflation rates approaches the Fed’s 2% objective. Given the big increases in both short-term and long-term interest rates in 2022 and an inverted Treasury yield curve, PNC expects the U.S. economy to experience a mild recession in 2023, with a modest increase in the unemployment rate to near a 5.2 percent peak in early 2024.