Jobless claims fall despite growing recession talk

Even with growing talk of recession on the horizon, the labor market is still on a relatively positive footing. It’s true that job openings have eroded and job creation has slowed, but both remain at levels that would have been deemed strong in the years leading up to the pandemic.

From 2015 to 2019, nonfarm payrolls increased by an average of 190,000 per month. Job creation has slowed considerably this year, but last month’s 263,000 gain was still a solid increase by comparison.

Initial jobless claims fell by 12,000 last week, dipping to 214,000 — well below the consensus forecast of 230,000. The four-week moving average edged slightly higher. Total claims increased by 21,000 to 1.385 million.

First-time jobless claims have consistently been coming in below the 1967–2019 historical average of 351,000 but have moved meaningfully off the March low of 166,000, a degree of increase that has at times in the past accompanied the onset of a recession. Still, job openings remain high, and demand for workers remains relatively strong.

There’s certainly been some noise in the claims data in the aftermath of Hurricane Ian. Initial claims in Florida soared nearly threefold for the week ended October 8 and remained elevated last week. That temporary disruption to the Florida economy contributed to some recent volatility in claims but should fade in the coming weeks. Even with that factor, the headline data hasn’t moved enough to raise eyebrows.

For a Fed looking for signs of erosion in labor market conditions as evidence that their aggressive anti-inflation campaign is having its desired effect, there’s no “bad news is good news” to be found here. The Fed is teed up to hike rates by another 0.75% in early November and appears committed to continuing to tighten until they see the “pain” that they believe will be needed to cool the economy and return inflation to a more palatable level.

The bottom line? Despite the stated objectives of and aggressive steps taken by the Fed, layoffs have edged lower since mid-summer. Given the long and variable lag before interest rate hikes are fully absorbed into the economy, policymakers may ultimately do too much, tipping the economy into recession and creating a surge in layoffs. For now though, the lack of more tangible progress in softening up tight labor market conditions will only reinforce the Fed’s bias toward aggressive monetary tightening.