The number of Americans filing new claims for unemployment benefits fell last week, but the picture of the labor market was unclear following revisions to prior data after the government updated the model it uses to adjust the series for seasonal fluctuations.
Initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 228,000 for the week ended April 1, the Labor Department said on Thursday. Data for the prior week was revised to show 48,000 more applications received than previously reported. Economists polled by Reuters had forecast 200,000 claims for the latest week.
The government revised data for some prior years and introduced new seasonal factors for both initial and the so-called continuing claims. These would be publicly available at midday.
COVID DISTORTIONS
Economists had viewed pandemic-related distortions to seasonal factors, the model that the government uses to strip out seasonal fluctuations from the data, as one of several factors keeping claims low despite high-profile layoffs in the technology industry and some interest rate-sensitive sectors.
Goldman Sachs in a note estimated that distortions to the seasonal factors had been “depressing reported seasonally-adjusted initial claims by 40,000-50,000 and have masked a roughly 45,000 rise in the official series since the start of the year.”
Employers have generally been reluctant to send workers home after struggling to find labor following the COVID-19 pandemic. The labor market is expected to loosen up in the second quarter as companies respond more to slowing demand triggered by the Federal Reserve’s interest rate increases.
Credit conditions have also tightened following the recent failure of two regional banks, which could make it harder for small businesses and households to access funding.
Small businesses, like restaurants and bars, have been the main drivers of job growth. Surveys from the Institute for Supply Management this week suggested that the labor market was fraying at the edges.
LABOR MARKET LOOSENING
The Labor Department reported Tuesday that job openings fell below 10 million at the end of February for first time in nearly two years. Still, there were 1.7 job openings for every unemployed person in February, which is making it easier for some laid off workers to quickly find employment.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 6,000 to 1.823 million during the week ending March 25, the claims report showed.
The claims data has no bearing on March’s employment report, which is scheduled to be released on Friday. According to a Reuters survey of economists, nonfarm payrolls likely increased by 239,000 jobs in March after rising 311,000 in February. The unemployment rate is forecast unchanged at 3.6%.
Cooling labor market conditions could allow the Fed to halt its fastest interest rate hiking cycle since the 1980s.
The U.S. central bank last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further rate hikes due to financial market turmoil. The Fed has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75%-5.00% range.
Signs that the labor market was losing speed were underscored by a separate report on Thursday from global outplacement firm Challenger, Gray & Christmas showing that U.S.-based employers announced 89,703 job cuts in March, up 15% from February. Layoffs jumped 319% on a year-on-year basis in March, concentrated in the technology industry.
LOSSES TRIGGER LAYOFFS
Layoffs this year have been blamed on a range of factors, including market or economic conditions, cost-cutting, store or department closures as well as financial loss. Businesses also had little desire to add workers.
“With rate hikes continuing and companies reigning in costs, the large-scale layoffs we are seeing will likely continue,” said Andrew Challenger, senior vice president at Challenger, Gray & Christmas.
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