Jobless Claims Retreat, Signaling Demand for Workers Remains High

Fewer Americans than expected signed up for unemployment benefits last week, signaling that demand for labor remains high.

The Department of Labor said Thursday that initial jobless claims fell by 16,000 to a seasonally adjusted 225,0000 in the week ended November 26.

Economists had forecast claims would dip by 2,000 from the preliminary report of 240,000 for the prior week. The prior week was revised up by 1,000 to 241,0000.

The fall in jobless claims largely reverses the gain of 18,000 in the prior week. The holiday period can make jobless claims volatile and hard to read. Retailers hire many workers during the holiday season and some employers may hold on to workers for fear of backlash over layoffs going into Thanksgiving and Christmas.

Seasonal adjustments have been inflating jobless claims for much of this year. That changed last week, when claims spiked, but the gap returned this week. Some have said that adjustments to seasonality made in the wake of the pandemic may be overstating claims numbers.

On an unadjusted basis, claims fell 50,512 to 198.557.

The decline in claims is an indicator that the Federal Reserve’s rate hikes still have not done much to tame demand for workers. Some analysts have speculated that even if the economy seriously slumps next year, employers could hold on to workers to avoid the troubles of re-hiring when the economy accelerates again, a phenomenon known as “labor hoarding.” The Fed has said that cooling demand for workers is part of its strategy for bringing inflation down.

The decline in jobless claims can be seen as frustrating the Fed’s efforts. On the other hand, it may mean that the labor market will remain resilient to rate hikes and make the so-called “soft landing” scenario—inflation falling with minimal damage to the economy—more likely.

The number of people continuing to collect jobless benefits rose by 57,000 to 1.61 million, the highest level since February. That data, however, is reported with a week’s lag and so it reflects the labor market conditions from two weeks ago.