If claims are maintained at around pre-pandemic levels, it is likely to increase the chances that the Federal Reserve will accelerate its decline in mortgage purchases and the rise in interest rates.
Applications for U.S. state unemployment benefits last week dropped to a level not seen since 1969, which, if sustained, would be the next milestone in the labor market’s unequal recovery.
Initial unemployment claims in regular government programs dropped by 71,000 to a seasonally adjusted 199,000 in the week ended November 20, Labor Department data showed Wednesday. The median estimate in a Bloomberg survey of economists called for 260,000 applications.
However, the larger-than-expected decline can be explained by how the government is adjusting the raw data for seasonal fluctuations. Lou Crandall, chief economist at Wrightson ICAP, pointed out in a recent note that seasonal factors expect a smaller increase in unadjusted claims compared to the same time last year as the labor market struggled to recover.
“It is simply a seasonal factor distortion. Many of them will turn around next week, “Crandall said after the release.
Before seasonal adjustments, last week’s initial jobless claims rose by about 18,000.
U.S. stock index futures maintained losses, and treasuries fell after jobless data and a separate report on durable goods orders showed a decline from the previous month. The Bloomberg dollar index has risen.
If claims are sustained at around pre-pandemic levels, it is likely to increase the chances that Federal Reserve officials will accelerate their decline in bond purchases and consider raising interest rates shortly after that purchase is completed in 2022. The data follows reports showing the fastest inflation in three decades and a pickup in job gains in October.
Claims stood at 216,000 by the end of February 2020, leading to the launch of Covid-19 in the U.S., which pushed applications to a high of 6.1 million in early April 2020. They have since declined as the economy reopened and Americans returned to work. Also, federal pandemic unemployment benefits ended by September 6 in all states.
Nevertheless, millions of Americans still choose to sit on the sidelines, frustrating employers who are desperate to fill an almost record number of jobs. Child care remains a serious problem for working parents, especially as Covid cases re-emerge in many states and disrupt personal learning.
The October employment report showed that payrolls increased by 531,000 after major upward revision of the previous two months. Economists are asking for another half a million to be added in November, which will be reported on December 3rd.