to Their Lowest Level Since Early-April 2022

• Initial claims for unemployment insurance fell by 6,000 in the week ending January 21, 2023 to 186,000. The four-week moving average fell by 9,000 to 198,000.
• Continuing claims rose by 20,000 to 1.675 million in the week ending January 14, 2023.
• PNC’s baseline forecast is for a mild recession starting in the spring of 2023.

Initial claims for unemployment insurance fell again by 6,000 to 186,000 in the week ending January 21, 2023, from a slightly upward-revised 192,000 (was 190,000) 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 21, 2023, which smooths out some of the volatility in weekly claims especially during holiday times, was 198,000 down 9,000 from the previous week’s unrevised 207,000. The four-week moving average is back down to its lowest level since early-September 2022.

Continuing claims rose by 20,000 to 1.675 million in the week ending January 14, from an upward-revised 1.655 million (was 1.647 million) in the previous week. The four-week moving average of continuing claims for the week ending January 14, was 1.664 million, down 11,000 from the previous week. The insured unemployment rate edged up to 1.2% in the week ending January 14, 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. Right now, the labor market is too tight for the Fed, and job growth is too strong, with average monthly gains of 247,000 payroll jobs in the final three months of 2022.

We expect a 25 bps funds rate hike at both the February 1 and March 22, FOMC meetings, bringing the funds rate target range up to a “terminal” 4.75-5.00%. 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, with the fed funds rate expected to move higher in the first quarter of this year, PNC expects the U.S. economy to experience a mild recession in 2023, with a modest increase in the unemployment rate to near a 5.5 percent peak in early 2024.