As the number of jobless claims goes up, does this mean that the economy is starting to slip? At least not yet. Don’t put your money on it.
One hundred and forty-three thousand people applied for unemployment benefits in the first week of June. This was the most in ten months. They were sitting below 210,000 just over two months ago.
Several top Federal Reserve officials, including Chicago Fed President Austan Goolsbee, were interested in the rise in jobless claims over the past month. These claims are a sign of layoffs.
He said on Monday in an interview with CNBC that the rise in claims could be a sign that the economy is under a lot of stress, which could mean that the Fed is keeping interest rates too high.
But are claims really going up? It’s not at all clear.
One reason could be that a statistical formula the government uses to account for seasonal changes in employment may have made the rise in unemployment claims since the end of April look bigger than it really is. For example, the number of jobs can go down at the end of the school year and up when school starts up again.
If the adjustments are taken out, the rise in new unemployment claims doesn’t look as bad. In the last week, there were only 227,213 raw claims, which is a very low number compared to the past.
Not only that, but from the first week of May to the first week of June, actual U.S. jobless claims were less than 200,000 every week. There have been very few times like that since the 1960s.
Not only that, but both actual and seasonally adjusted jobless claims are much lower now than they were a year ago.
What’s to say that things won’t get worse?
To find out if layoffs are really on the rise, economists say it will take at least a few more weeks. They also say that the latest rise in claims will likely fade quickly, just like previous ones.
Take June 2023, when the number of jobless claims also went up. From as low as 209,000 two months earlier, they shot up to as high as 261,000. But by early last fall, they had dropped back to around 200,000.
In a note to clients, RSM economist Tuan Nguyen said, “For now, the rise in new claims over the past few weeks looks a lot more like a seasonal issue than a sign that the job market is getting worse.”
Other reports also say that layoffs are still very low.
The government’s JOLTS survey of open jobs showed that the number of layoffs in April was still very close to the lowest level ever. They were also the same as they were a year ago.
Data at the state level shows the same thing.
The number of new unemployment claims dropped last week in 24 of the 53 states and territories that report to the federal government on joblessness. This is compared to the same time last year.
As compared to a year ago, the number of new claims in 22 states went up by a small amount, usually 500 or less.
A year ago, there were 1,000 or more more claims in only six states. These are Florida, California, Massachusetts, Michigan, Minnesota, and New Jersey.
Five of the six are run by Democrats, so the rules for who can get benefits are less strict. Recently, Minnesota made it possible for people who work in schools, like bus drivers, janitors, and cafeteria workers, to file for benefits when the school year ends.
But that doesn’t mean claims won’t go up.
Since last year, the Federal Reserve has kept a key short-term interest rate at the highest level in 23 years. This is to try to slow down the economy and lower inflation. Higher interest rates on loans have hurt home sales and business investment, which has decreased the need for workers.
It had been three years since there were so few job openings, but that changed in April. In May, the unemployment rate rose to 4% for the first time in 28 months.
So, this is why Goolsbee asked if the Fed was keeping rates too high.
Even so, the U.S. added 272,000 more jobs in May than was expected, and another big gain is expected in June. If the economy doesn’t get better or inflation doesn’t slow down, the Fed won’t let rates go down just yet.
Take a close look at claims of unemployment. If they keep going up after August, it’s probably a sign of trouble.
But if recent events are any indication, they could drop again to very low levels that are consistent with a stable economy and a very tight job market.
According to U.S. economist Thomas Simons of Jefferies, they are carefully watching the data that comes out over the next few weeks to see if a trend starts to form.
