PNC: Jobless Claims Lowest in 50 Years. Is It a Fluke?

By Gus Faucher, chief economist at PNC
PITTSBURGH, Pa. — Initial claims for unemployment insurance fell to 199,000 in the week ending November 20, to their lowest level since 1969. Claims were expected to fall for the week, but not by this much. Claims for the week ending November 13 were revised slightly higher to 270,000, and claims for the week ending November 6 were 269,000, meaning that the streak of claims falling for six straight weeks ended in mid-November.

The four-week moving average of claims, which smooths out some of the volatility, was 252,250 in the week ending November 20, down from 273,250 the previous week. This was the lowest level for the four-week moving average since March 14, 2020, as the pandemic was coming to the United States.

Although the plunge in UI claims was certainly welcome, it does not indicate a dramatic turn in the labor market. Claims are highly volatile, especially around holidays. The Thanksgiving holiday adds additional volatility as it moves around the calendar and can disrupt the seasonal-adjustment process, intended to smooth out variations in claims that occur every year. And volatility has been even more pronounced with the Viral Recession and swift recovery. Claims for the week ending November 20 are likely to be revised higher and claims for the week ending November 27 will almost surely increase.

That said, initial UI claims have been dropping over the past few months toward their pre-pandemic level of around 200,000, a very encouraging trend. Initial claims jumped to more than 6 million in April of last year as the pandemic came to the U.S. They then fell quickly to around 900,000 per week by early August 2020, then stabilized at between 700,000 and 900,000 between August 2020 and March 2021. Claims fell gradually but steadily this spring before stabilizing at around 400,000 per week, and then started to decline again in August.

The total number of people receiving benefits under regular state unemployment insurance programs (continued claims) fell to 2.049 million in the week ending November 13, from 2.109 million the previous week (revised higher from 2.080 million). Continued claims have fallen in eight of the past nine weeks. The four-week moving average of continued claims fell to 2.117 million, from 2.165 million. These are the lowest levels for continued claims since March 2020, as the pandemic was first coming to the U.S. The four-week moving average of continued claims has fallen every week but once since late May as unemployed workers leave the rolls, either because their benefits have expired or because they have found a new job.

State continued claims peaked at more than 23 million in May 2020 and are gradually moving closer to their pre-recession level of around 1.7 million. With most people receiving benefits via pandemic-related programs until recently, continued claims under regular state programs had been less important as a labor market indicator. But those pandemic-related programs expired in September, and regular state continued claims are now more relevant.

Look past the huge drop in initial claims in the week ending November 20, and instead at the trends throughout 2021. Both initial and continued claims for unemployment insurance have steadily fallen, with initial claims back to their pre-pandemic level, and continued claims approaching theirs. Demand for labor is very strong and workers are in short supply, so layoffs are very low right now. Those workers who do find themselves unemployed can quickly find new jobs.

The biggest problem for the labor market in late 2021 is too few workers; there are about 3 million fewer people in the labor force now than there were before the pandemic. Millions of people lost their unemployment insurance benefits in September, or saw their benefits drop, as special pandemic-related UI programs expired. The expectation is that these people will soon re-enter the labor force, relieving some of the labor shortages and allowing for stronger job growth. But labor force participation barely budged in September and October after the expiration of these benefits. Job growth in 2023 could be weaker than expected if these potential workers are slow to return to the labor force.

Copyright 2021 The Business Journal, Youngstown, Ohio.