• The labor market continues to tighten.
• Initial claims are running just above their level in 2019 and early 2020, before the pandemic struck.
• The FOMC’s decision about whether to accelerate tapering at the December 14-15 meeting is finely balanced

Initial claims for unemployment insurance rose 28,000 to 222,000 the week ending November 27, up from 194,000 the prior week; the prior week’s level was revised down 5,000 to the lowest in over a half-century. The four-week moving average of initial claims fell 12,250 thousand to 238,750, the lowest since March 2020. After surging into the millions in the spring of 2020 as the economy shut down, initial claims are now at the top of their range between 2019 and early 2020.

The insured unemployment rate fell to 1.4% the week ending November 20, down 0.1 percentage point on the week; this is the share of workers covered by state unemployment insurance programs who are currently claiming benefits. For comparison, the insured unemployment rate was 1.4% for most of the time from early 2017 through early 2018, a period when the unemployment rate from the Bureau of Labor Statistics’ Current Population Survey (the one to be released tomorrow) ranged from around four to four-and-a-half percent.

The latest unemployment insurance claims data reinforce the signal from ADP’s report on private-sector payroll growth in November and the uptick in the ISM employment sub-index, both released yesterday: Job growth was likely solid in November. The labor market continues to tighten as retailers staff up for the holiday shopping season.

The strength of recent labor market data make the FOMC’s December 14-15 decision a finely balanced one. On the one hand, inflation continued to overshoot their target in October, the latest data in hand, and the jobs recovery looks to be proceeding well despite the winter wave of the pandemic. The winter wave might actually be a reason for the Fed to tighten faster since workers who are more worried about getting sick will be slower to re-enter the job market. On the other hand, Omicron headlines have sent oil prices sharply lower, which will take some of the edge off of inflationary pressure in early 2022. The risk that Omicron or another as-yet-undetected coronavirus variant delays the recovery in 2022 will be top of mind for FOMC members.

Chair Powell’s mention in Congressional testimony yesterday that the Fed will discuss the pace of the taper at their December meeting is a strong tell that he leans toward a faster taper pace, which would give the Fed room to start raising interest rates by mid-2022 if job growth stays robust and/or inflation stays high. On the other hand, the release of more reliable information about Omicron before the mid-month meeting might justify a downgrade of recovery prospects and give the Fed a reason to stick with their current plan of ending the taper in mid-2022.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.