to Lowest Level Since 1969

• Initial claims for unemployment insurance fell to their lowest level since 1969 in the week ending December. The four-week moving average of claims also fell.
• The number of people receiving state UI benefits rose in the week ending November 27, but the four-week moving average continued its steady decline.
• While the recent plunge in initial claims likely overstates the recent improvement in the labor market, the headline number in the November jobs report likely understates it.
• Continued strong job growth in 2023 depends on an expanding labor force.

Initial claims for unemployment insurance fell sharply in the week ending December 4, to 184,000, from 227,000 the previous week (revised higher from 222,000). This is the lowest level of initial UI claims since September 1969. Over the past few weeks initial claims have dropped sharply, from around 270,000 in the first half of November.

The four-week moving average of claims, which smooths out some of the volatility, fell to 219,000 in the week ending December 4, from 240,000 in the week ending November 27. This is the lowest level of the four-week moving average since early March 2020, right before the pandemic hit the labor market.

The plunge in initial UI claims in recent weeks likely overstates the improvement in the labor market. Claims are highly volatile, especially around the winter holidays. And volatility has been even more pronounced with the Viral Recession and swift recovery. That being said, the four-week moving average of initial UI claims has been dropping in recent months and is quickly approaching its 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) rose slightly to 1.992 million in the week ending November 27, from 1.954 million the previous week (revised slightly lower from 1.956 million). The four-week moving average of continued claims fell to 2.028 million from 2.082 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 found a new job, and is at its lowest level since March 2020, as the pandemic was first coming to the U.S.

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.

There have been divergent messages between UI claims and the November jobs report. Claims, particularly initial claims, have plunged over the past few weeks, while headline job growth in the November report was disappointing at 210,000. But the drop in UI claims likely overstates the improvement in the labor market in late 2021, while the weak November topline number likely understates it. For one, the big drop in UI claims came after the Bureau of Labor Statistics collected the preliminary data for the November jobs report from employers. Second, there have been extremely large upward revisions to the initial numbers in the jobs report in recent months, suggesting that the 210,000 number is likely to be revised substantially higher over the next couple of months. And finally, results from a different survey of jobs, collected from individuals, were much better–more than 1 million adults reported that they started working in November. Taken together, all of this suggests that the labor market is churning out new jobs in late 2021.

Both initial and continued claims are steadily declining. Demand for labor is very strong and workers are in short supply, so layoffs are very low. Those workers who do find themselves unemployed can quickly find new jobs. The biggest 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, although a big increase in the labor force in November is encouraging; 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 is 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.

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