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PNC Chief Economist Gus Faucher: Initial UI Claims Remain Near Decades-Long Low

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  • Initial claims for unemployment insurance fell in the week ending December 11. The four-week moving average was at its lowest level in more than five decades. 
  • Continued claims and its four-week moving average both fell in the week ending December 4, to their lowest levels since the beginning of the pandemic. 
  • While UI claims are likely overstating the improvement in the labor market, job growth is very strong in late 2021. 
  • The biggest problem in the labor market now is a shortage of workers.

Initial claims for unemployment insurance rose slightly in the week ending December 11, to 206,000, from 188,000 the previous week (revised higher from 184,000). The four-week moving average of claims, which smooths out some of the volatility, fell to 204,000 in the week ending December 11, from 220,000 the previous week. This is the lowest level for the four-week moving average since 1969. 

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 since November. 

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 quickly over the past month and is now below its pre-pandemic level of around 200,000, a very encouraging trend. 

The total number of people receiving benefits under regular state unemployment insurance programs (continued claims) fell sharply to 1.845 million in the week ending December 4, from 1.999 million the previous week (revised slightly higher from 1.992 million). The four-week moving average of continued claims fell to 1.963 million, from 2.029 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. Both the one-week and four-week moving average of continued claims in the week ending December 4 declined to their lowest levels 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 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. 

Both initial and continued claims are extremely low at the end of 2021. Some of this improvement is likely due to a combination of the holidays, the seasonal adjustment process, and the huge swings in the labor market from the recession and recovery. And 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. 

Initial claims are extremely low, and continued claims are low and 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, reopenings 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.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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