US jobless claims show emerging cracks in a strong labour market

By Mackenzie Hawkins

Applications for US unemployment benefits last week signaled that the labor market still remains relatively strong, even though data revisions indicate some emerging signs of softening.
 

Initial unemployment claims were 228,000 in the week ended April 1, Labor Department data showed Thursday. For the week before that, the government revised the numbers up by 48,000 to 246,000, likely explaining why the latest reading exceeded almost all economists’ estimates. This report included updated seasonal factors going back to 2018.

“These changes should provide a more accurate picture of claims levels and patterns for both initial and continued claims,” the report said.

The Labor Department had to change the way it adjusts for seasonal factors during the pandemic to limit distortions. Thursday’s data maintain that method for the first year of the pandemic but use the traditional way when looking at figures before March 2020 and after June 2021.

Continuing claims, which include people who have received unemployment benefits for a week or more and are a good indicator of how hard it is for people to find work after losing their job, was little changed at 1.82 million in the week ended March 25. The previous week was revised up.

Economists have been puzzled as to why claims were so low, especially given large waves of layoffs and other signs of softening in the labor market. Even with the adjustments, applications are still relatively low and indicative of strong demand for workers.

A separate report Thursday showed job-cut announcements from US-based employers rose 15% in March from the prior month, marking the highest first-quarter total since 2020, according to Challenger, Gray & Christmas, Inc.

What Bloomberg Economics Says...

“We have long suspected claims numbers were artificially low, stemming from pandemic-distorted problems in seasonally adjusting the data. With job-cut announcements up 15% in March amid weaker market and economic conditions, more Americans are likely to apply for unemployment benefits ahead.”

— Eliza Winger, economist

To read the full note, click here

However, the higher level of claims shouldn’t be interpreted as a sign that layoffs have suddenly surged, according to Stephen Stanley, chief US economist at Santander US Capital Markets LLC.

“I think we are going to have to give it a few weeks to see how this plays out,” Stanley said in a note. “Having said that, it is true that the trend in seasonally adjusted initial claims is noticeably higher than previously estimated, which does suggest that the flurry of layoff announcements so far this year has begun to show up in these data.”

The four-week moving average in initial claims, which smooths out week-to-week volatility, fell to 237,750 from an upwardly revised 242,000 in the prior period.

On an unadjusted basis, claims fell by around 17,000 to 206,931, with California, Kentucky and Michigan posting the biggest decreases. Indiana posted the largest increase.

The data precede Friday’s employment report, which is expected to show another strong month of hiring in March and the unemployment rate holding near a historic low.