Still Near Decades-Long Lows; No Indications of Omicron Hit

• Initial claims for unemployment insurance rose slightly in the week ending January 1 but remained near a decades long-low.
• Continued claims rose slightly in the week ending December 25, but the four-week moving average continued to fall toward its pre-recession level.
• There is no indication in the claims data that the omicron variant is weighing on the labor market.
• PNC expects job growth of 425,000 when the BLS releases the jobs report for December on Friday, January 7.
• The omicron variant and weak labor force growth are the biggest downside risks to the job market in early 2022.

Initial claims for unemployment insurance rose to 207,000 in the week ending January 1, up from 200,000 the previous week (revised higher from 198,000). The four-week moving average of claims, which smooths out some of the volatility, was 204,500 in the week ending January 1. This was up from 199,750 in the week ending December 25, the lowest level for the moving average since 1969.

Looking through the week-to-week variations, initial claims for unemployment insurance in December 2021 were stable at around 200,000 per week, bouncing around their lowest levels since the late 1960s. This is slightly below their pre-pandemic level of around 215,000. As of the end of 2021, initial claims provide no indication that the omicron variant has led to an increase in layoffs.

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, with an especially large decline in the second half of November. In December they settled in at around 200,000 per week.

The total number of people receiving benefits under regular state unemployment insurance programs (continued claims) rose by 36,000 in the week ending December 25 to 1.754 million; claims for the previous week were revised up slightly to 1.718 million, from 1.716 million. The four-week moving average of continued claims fell to 1.799 million, from 1.860 million. 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 quickly found a new job. This is the lowest level for the four-week moving average of claims since mid-March 2020, just as the pandemic was coming to the United States.

State continued claims peaked at more than 23 million in May 2020 and are inching toward 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.

Both initial and continued claims are extremely low at the end of 2021. Some of this improvement is likely overstated due to a combination of the holidays, the seasonal-adjustment process, and the huge swings in the labor market from the recession and recovery. But extremely low initial claims, and the ongoing downward trend in continued claims, demonstrate strength in the labor market at the end of 2021. In particular, there is no indication in the claims data that the omicron variant is leading employers to lay off workers, or that it is leading them to slow down their hiring efforts. However, the omicron variant could still be a drag on the labor market in early 2022.

PNC expects headline job growth of 425,000 in December when the Bureau of Labor Statistics releases the monthly jobs report tomorrow. The U.S. economy added just 210,000 jobs in November, according to the BLS, but there have been big upward revisions to the preliminary estimates in subsequent months recently as employers provide more complete information to the BLS. PNC is also expecting an upward revision to November job growth on Friday. And if the initial December number comes in weaker than expected, it is likely to be revised higher over the next couple of months. PNC expects that the unemployment rate declined to 4.1% in December, from 4.2% in November. The unemployment rate was 3.5% in early 2020, before the pandemic, then soared to 14.8% in April 2020. Since then it has fallen swiftly as the labor market has recovered.

In addition to the potential impact of omicron, a big problem for the labor market right now is too few workers; there are about 2.5 million fewer people in the labor force now than there were before the pandemic. That being said, the big increase in the labor force in November was encouraging, as almost 600,000 additional people either started working or looking for work over the month. Continued growth in the labor force will be important for job creation in 2022. The expectation was that a fading in the pandemic, re-openings at schools and childcare centers, and the gradual reentrance of people who lost their unemployment insurance benefits in September into the workforce will help relieve labor shortages and allow for continued strong job growth next year. However, rising coronavirus cases due to the omicron could put the labor force recovery on hold, at least for the next couple of months.

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