WASHINGTON — The number of Americans filing new claims for unemployment benefits fell last week, indicating a further tightening of labor market conditions heading into the second quarter, which could contribute to keeping inflation elevated.
Part of the decline in claims back to a more than 53-year low touched in mid-March reflected a revision of the seasonal factors, the model that the government uses to strip out seasonal fluctuations from the data.
During the coronavirus disease 2019 (COVID-19) pandemic, the Labor Department switched to additive factors to seasonally adjust the initial and continued claims data from multiplicative factors, which economists had complained were less reliable because of the economic shock caused by the coronavirus crisis.
“Now that most of the large effects of the pandemic on the unemployment insurance series have lessened, the seasonal adjustment models are once again specified as multiplicative models,” the Labor Department said in a statement on Thursday. “Statistical tests show that the unemployment insurance series should, in normal times, be estimated multiplicatively.”
Initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 166,000 for the week ended April 2. Claims were at this level during the week ending March 19, which was the lowest since November 1968.
Seasonal factors back then were much different from now, making it difficult to make comparisons. Economists polled by Reuters had forecast 200,000 applications for the latest week.
The government also revised claims data from 2017 through 2021, which showed the level of filings much lower last year. The switch back to multiplicative factors pushed applications down by about 20,000–40,000 for the recent weeks. Claims hit a record high of 6.137 million in early April 2020.
The government said it would use a hybrid of multiplicative and additive seasonal factors while the pandemic remains within the five-year revision period. Multiplicative seasonal factors are assumed to be proportional to the level of filings while additive factors are not affected.
“The message from these volatile and revision-prone data continues to be that the labor market is very tight by most historical standards,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
A severe shortage of workers is keeping layoffs low and boosting hiring. Worker demand is being driven by a sharp decline in COVID-19 infections, which has resulted in restrictions being lifted across the country.
There were big declines in claims in Michigan and Texas, which offset increases in California, Ohio and Pennsylvania.
Stocks on Wall Street were trading lower. The dollar was steady against a basket of currencies. Prices for longer-dated U.S. Treasuries fell.
NEAR RECORD JOB OPENINGS
There is no sign yet that the Russia-Ukraine war, which has pushed gasoline prices above $4 per gallon, has impacted the labor market. Nonfarm payrolls increased by 431,000 jobs in March, the government reported last Friday.
March marked the 11th straight month of job gains in excess of 400,000, which pushed the unemployment rate to a fresh two-year low of 3.6%. The jobless rate is just one tenth of a percentage point above its pre-pandemic level.
With a near record 11.3 million job openings on the last day of February, the scarcity of workers is forcing companies to boost wages, which is contributing to high inflation.
While the claims report also showed the number of people receiving benefits after an initial week of aid increased 17,000 to 1.523 million during the week ended March 26, the trend in the so-called continuing claims remained low.
“This was just a modest move up from the revised reading for the week ended March 19 that currently stands as the low since the start of the pandemic,” said Daniel Silver, an economist at JPMorgan in New York.
Minutes of the Federal Reserve’s March 15–16 meeting published on Wednesday showed policymakers observed that “demand for labor continued to substantially exceed available supply across many parts of the economy,” and “that various indicators pointed to a very tight labor market.”
The US central bank last month raised its policy interest rate by 25 basis points, the first hike in more than three years. Wednesday’s minutes appeared to set the stage for hefty rate increases down the road.
Job openings far outpace the number of unemployed, illustrating the hiring challenges companies are facing. There were 6.0 million officially unemployed people in March.
The resulting strong wage growth is providing some cushion for consumers battered by soaring prices, with annual inflation rising at its fastest pace in 40 years.
“The job market is strong, giving consumers a break from inflation and geopolitical concerns,” said Scott Murray, an economist at Nationwide in Columbus, Ohio. “Open positions and fewer layoffs point to solid economic growth.” — Lucia Mutikani/Reuters