The number of Americans filing new claims for unemployment benefits increased by the most in five months last week, but the underlying trend remained consistent with a tight labor market.
Part of the larger-than-expected rise in claims reported by the Labor Department on Thursday reflected a surge in applications in New York state, which some economists attributed to a mid-winter school recess from Feb. 20-24. There was also a sharp rise in filings in California.
“Even after factoring in the latest increase, jobless claims are exceptionally low by historical standards, underscoring just how tight labor market conditions still are,” said Michael Pearce, lead U.S. economist at Oxford Economics in New York.
“It’s possible this is an early sign that the spike in announced layoffs is beginning to filter through to some job losses, but not all announced layoffs translate into job cuts.”
Initial claims for state unemployment benefits rose 21,000 to a seasonally adjusted 211,000 for the week ended March 4. That was the largest increase since October and lifted claims to a two-month high. Still, claims remained well below the 300,000 level, which is associated with a recession.
Economists polled by Reuters had forecast 195,000 claims for the latest week. The four-week moving average for new claims, a better measure of labor market trends as it irons out weekly fluctuations, climbed 4,000 to 197,000 last week.
Claims had stayed below 200,000 for seven straight weeks, indicating that high-profile job cuts in the technology sector had not had a material impact on the labor market.
Economists previously argued that seasonal adjustment factors, the model the government uses to strip out seasonal fluctuations from the data, could be holding down claims.
The seasonal adjustment factors for 2023 will be updated at the end of March. Goldman Sachs believed residual seasonality accounted for about half of last week’s rise in claims.
“Seasonal adjustment issues have exerted an increasing amount of downward pressure on initial claims over the last few months, and that pressure will begin to reverse in a few weeks, though annual revisions to the seasonal factors at the beginning of April could potentially eliminate the seasonal distortions,” Goldman Sachs said in note.
Unadjusted claims shot up 35,357 to 237,513 last week. They were boosted by a jump of 16,363 in filings in New York and a surge of 10,489 in California. There were also notable rises in applications in Kentucky, Oregon and Ohio. But claims in Rhode Island and Massachusetts fell significantly.
According to Lou Crandall, chief economist at Wrightson ICAP, the increase in the New York state claims was “a predictable response to the previous week’s mid-winter school break and will probably be reversed in next week’s report.” Crandall viewed the rise in California filings as “likely to be more persistent,” and expected overall claims to retreat to the 195,000-200,000 range when this week’s data is published next Thursday.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices were mixed.
Graphic: Jobless claims and planned layoffs
SKILLED WORKERS SCARCE
Data on Wednesday showed there were 1.9 job openings for every unemployed person in January. The Fed’s “Beige Book” report, also released on Wednesday, described the jobs market as remaining “solid” in February, and noted “scattered reports of layoffs” and that “finding workers with desired skills or experience remained challenging.”
With the labor market persistently tight, inflation readings strong and consumer spending robust in January, Fed Chair Jerome Powell told lawmakers this week that the U.S. central bank would likely need to raise interest rates more than expected.
Financial markets have priced in a 50-basis-point rate hike at the Fed’s March 21-22 policy meeting, according to CME Group’s FedWatch tool.
The Fed has increased its policy rate by 450 basis points since last March from the near-zero level to the current 4.50%-4.75% range.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 69,000 to 1.718 million during the week ending Feb. 25, the claims report also showed. The so-called continuing claims remain low, suggesting some laid-off workers could be easily finding new work.
The claims data has no bearing on February’s employment report, which is scheduled to be published on Friday, as it falls outside the survey period.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 205,000 jobs in February after surging by 517,000 in January. The unemployment rate is forecast to be unchanged at more than a 53-1/2-year low of 3.4%.
The labor market is, however, cooling on the margins. A report from global outplacement firm Challenger, Gray & Christmas on Thursday showed job cuts announced by U.S.-based employers fell 24% to 77,770 in February. Planned layoffs were, however, 410% higher compared to the same period last year. It was also the highest February total since 2009.
Job cuts were concentrated in the technology industry, which accounted for 28% of layoffs announced last month. Retailers and finance firms are also reducing headcount.
“With 1.9 vacancies per job seeker, severed workers appear to be swiftly finding reemployment, which could make the unemployment dynamics quite different from historical experience in the event that layoffs continue to rise,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Graphic: Challenger layoffs: select sectors