As the year ends, the US labor market continues its unexpected strength. New applications for unemployment benefits have dropped to their lowest level since eight months.
This significant decline in unemployment claims indicates a continuing trend of low layoffs. This reinforces the notion that a robust job-market is impervious to economic headwinds.
The Labor Department released this data on Thursday. It comes amid a flurry positive economic indicators including strong consumer spending. This data serves as a further reason for the Federal Reserve to be cautious about interest rate reductions in the coming year.
The Fed’s appetite for aggressive rates cuts
Jeffrey Roach, Chief Economist at LPL Financial told Reuters that a stable job market would dampen the Fed’s appetite to cut rates aggressively in light of persistent services inflation.
The latest report showed that initial claims for unemployment benefits for the state fell by 9,000 and reached a seasonally-adjusted 211,000 for week ending December 28th.
This is the lowest level of claims since April, and it significantly falls below the 222,000 claims economists had predicted for the week.
While the number of unadjusted claims dropped significantly in some states, such as California and Texas; others, including Michigan, New Jersey and Pennsylvania, Ohio, Massachusetts and Connecticut, saw an increase.
The four-week moving mean of claims, which gives a better picture of the trend, has also decreased. It is now 223,250.
The job market is resilient in the face of year-end volatility
The jobless claims fluctuate around the holidays. However, the underlying trend is consistent with a labor-market that is slowly modifying but still holding its ground. This deceleration does not indicate a wider economic downturn.
In response to this news, the dollar strengthened versus a basket currency, while US stocks were set for a positive start.
After three consecutive rate reductions, the Federal Reserve lowered its benchmark interest rate overnight to a range between 4.25% and 4.50%.
The central bank has taken a more cautious approach to future rate cuts. It now expects only two reductions in rates this year as opposed to four predicted in September. This is due to the resilience of the economy and the job market.
Long-term unemployment, and hiring hesitancy
Employers are reluctant to hire more people, despite the fact that layoffs are low.
This hesitation is partly due to the large number of workers hired during the recovery period following the Covid-19 pandemic. As a result, some workers who lost their jobs face extended periods without employment.
In November, the median duration of unemployment reached a new high.
According to the claims report, the number of people receiving benefits following an initial week of assistance, a proxy of hiring, decreased by 52,00 to a seasonally-adjusted 1.844 millions during the week ended December 21st.
Data on jobless claims sets the stage for a key employment report
Economists suggest some of the persistent increase in continuing claims can be attributed to the difficulty in adjusting the data for seasonal fluctuations.
Also, they project that the unemployment rates will remain at 4,2% in December.
Next Friday, the government will release its closely-watched December employment report. This report will provide additional insights into the overall state of the labor market as well as the economic trajectory.
This post US Jobless Claims Hit 8-Month Low: Key Numbers You Need to Know may be modified based on new developments.
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