Unemployment Claims in the US dropped to their Lowest Level in Decades

Listen to this article

Last week, claims for unemployment benefits dropped to their lowest level in decades. On Thursday, the US Department of Labor said there were 184,000 initial claims the week ended on 4^th December. That’s 43,000 fewer than the week prior and the lowest level since 6^th September 1969. The report tops another eye-popper just two weeks earlier when claims also fell to a five-decade low. But these data points include a seasonal adjustment, which controls for layoff patterns at various times of the year. US Labor Department said the unemployment claims increased by about 64,000 or 29% last week, to a total of 281,000. The department actually expected a bigger post-Thanksgiving jump in benefit applications and adjusted accordingly as it anticipated 42,000 more claims. That showed up as a large decrease in seasonally adjusted claims.

However, these seasonal adjustments are standard practice, but the pandemic is complicating the labor dynamic. High COVID case levels fueled by the delta variant and now concerns over the omicron virus strain may be sidelining workers or affecting things like child care that affect one’s job prospects. A senior economist at the career site Glassdoor, Daniel Zhao said, “It’s not obvious why the seasonal adjustment has struggled in the last few weeks, but weekly [seasonal adjustment] is difficult even in normal times”. He also said that similar volatility in unemployment claims is likely throughout December and into January, generally, a time when seasonal layoffs and furloughs are elevated. This isn’t all to say the labor market seems strong when it’s really weak; it more underscores that the historically low level of unemployment claims shouldn’t necessarily be taken at face value.

Moreover, the labor market has been steadily improving. Weekly initial claims for unemployment benefits on an unadjusted basis are about the same as their pre-pandemic level in December 2019. The initial claims for unemployment benefits at the same time last year were more than 3 times their current level. The US unemployment rate dropped to 4.2% in November, which marked the lowest since February 2020. Employers are reluctant to lay off workers amid a near-record level of job openings. The number of employees who quit their jobs eased off its September record but remained elevated as workers see ample job opportunity and bargaining power. A corporate economist at Navy Federal Credit Union, Robert Frick said, “We may be entering a stretch when lower-than-average layoffs continue until the ‘Great Resignation’ fades, while the latest unemployment claims data should be taken with a grain of salt given seasonal adjustments”.