Strong, stable labor market may signal new normal to Federal Reserve

In his news conference Wednesday, Federal Reserve Chair Jerome Powell said he’s watching data from the labor market very closely for any signs of unexpected weakness, and he’s not seeing any. Specifically he said, initial unemployment claims remain “very, very low.” 

Thursday we found out that they went even lower. Data released by the Department of Labor shows that the number of Americans filing new claims for unemployment benefits fell slightly last week. Not a ton, but claims are below pre-pandemic levels and near historic lows.

Weekly initial jobless claims are, well, weekly, so they can be a bit noisy, said Mark Hamrick, a senior economic analyst at Bankrate. But lately they’ve been remarkably stable.

“The fact that they have remained somewhat quiet has been a pleasant surprise,” he said. “And that’s also reflected in the fact that the unemployment rate has remained below 4% for the longest stretch since the 1960s. Cue the Beatles.”

(Actually, the Fed chair seems to be more of a Grateful Dead fan.)

Despite what feels like a steady drumbeat of layoff announcements, the volume of layoffs has actually been unusually low. Plus, job cuts have also been concentrated at big companies in tech and finance, said Andy Challenger at Challenger, Gray & Christmas.

“People with really highly paid jobs in those sectors tend to be less likely to request unemployment insurance,” he said.

But there may be more layoffs in the works, Challenger said. His staffing firm has been tracking job cut announcements — which he said spiked in the first two months of the year — with companies collectively planning more than 150,000 layoffs.

And when people do lose their jobs, it’s taken them longer to land new work. The number of people continuing to file for unemployment benefits beyond a week was on the increase at the end of last year, said Julia Pollak, chief economist at ZipRecruiter.

“But they have since plateaued, they’ve leveled off. And so while it’s true that new hiring is quite slow, it doesn’t appear to be deteriorating any further,” she said.

And all this stability and quiet in the labor market could speak volumes to the Fed chair, said Ron Hetrick, a labor economist at Lightcast.

“I think he’s already started to get a feel for the fact that tight labor markets are our norm. We just don’t want ’em too tight,” he said.

An aging population and persistently smaller workforce might mean a labor market that just keeps on truckin’, Hetrick said. Even with higher interest rates.