Economic News
US Labor Market Finishes 2022 on a High Note
The number of Americans filing new claims for unemployment benefits fell to a three-month low last week, while layoffs fell 43 percent in December, indicating a still-tight labor market that may compel the Federal Reserve to raise interest rates further.
Other data on Thursday showed that private firms employed significantly more people than expected last month, highlighting the labor market’s resiliency. According to the reports, the economy ended 2022 on a strong footing, despite a string of layoffs in the IT industry, as well as in interest-rate-sensitive sectors like finance and housing.
The job market’s resilience has increased the risk that the Fed, which is on its fastest rate-increase cycle since the 1980s as it tries to dampen demand to tame inflation, will raise its target interest rate above the 5.1 percent peak projected by the US central bank last month and keep it there for some time.
“Fed officials are expecting a deceleration in the labor market given last year’s large increase in interest rates,” said Stuart Hoffman, senior economic adviser at PNC Financial in Pittsburgh, Pennsylvania. “The labor market is currently too tight for the Fed, and job growth is too high.”
For the week ending December 31, initial claims for state unemployment benefits fell 19,000 to a seasonally adjusted 204,000, the lowest level since the end of September. Reuters polled economists, who predicted 225,000 claims for the most recent week. Despite the unpredictability of the year-end holidays, claims have remained extremely low.
Last week, unadjusted claims increased by 5,703 to 275,552. Claims increased significantly in New Jersey, New York, Pennsylvania, and Michigan, offsetting decreases in Missouri, Texas, and Kentucky.
Economists argued that severance benefits and continued high labor demand, which made it easier for laid-off workers to find new work, we’re keeping claims low. They also predicted that after struggling to recruit workers during the pandemic, businesses would halt hiring before implementing layoffs.
According to the Labor Department, there were 10.458 million job opportunities at the end of November, translating to 1.74 jobs for every unemployed individual.
US stocks began the day down. The US dollar gained ground versus a basket of currencies. Treasury prices in the United States decreased.
The labor market is quite constrained.
Last year, the Fed lifted its policy rate by 425 basis points from near zero to a range of 4.25 percent – 4.5 percent, the most since late 2007. It forecasted an extra 75 basis point increase in borrowing costs by the end of 2023 last month.
Officials noted that the labor market remained “very tight,” with a “few remarking that some business contacts reported that they would be keen to retain workers even in the face of slowing output demand due to their recent experiences of labor shortages and hiring challenges,” according to minutes of the Fed’s December 13-14 policy meeting, which were published on Wednesday.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 24,000 to 1.694 million in the week ending December 24th, according to the jobless claims report.
According to a separate survey released on Thursday by global outplacement agency Challenger, Gray & Christmas, US-based companies disclosed 43,651 job cutbacks in December, a 43 percent decrease from November. The amount, however, was 129 percent greater than in December 2021, and it was the second-largest monthly figure announced in 2022.
The total number of employment cuts in 2022 grew by 13% to 363,824. It was nevertheless the series’ second-lowest annual total since Challenger began measuring it in 1993.
According to a third report, private payrolls grew by 235,000 last month after increasing by 182,000 in November. Economists predicted the ADP National Employment Report to show a 150,000 gain in private jobs.
The figures were released ahead of the release of the Department of Labor’s more complete and carefully regarded December employment report on Friday.
Nonfarm payrolls are expected to have increased by 200,000 jobs, according to a Reuters poll of economists. In November, the economy added 263,000 jobs.
According to the Department of Commerce’s fourth report, the trade deficit shrank by 21% in November to $61.5 billion, the lowest level since September 2020. The trade deficit shrank to its smallest since February 2009, including a drop in goods imports to a 13-month low.
While a lower import bill boosts GDP from an accounting standpoint, it also indicates that domestic demand is softening under high borrowing costs. Nonetheless, it will compensate for the drop in exports. The main contributor to the economy’s 3.2 percent annualized growth rate in the third quarter was a lower trade deficit. The fourth-quarter growth rate is expected to be as high as 3.8 percent.
“Trade will bolster fourth-quarter GDP,” said Oxford Economics’ head economist Ryan Sweet. “Stable economic growth raises the possibility that the recession will occur later than our current second-quarter 2023 baseline projection.”
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