Labor Market Still Very Good

• Initial claims for unemployment insurance rose in the week ending February 12 to 248,000, the first increase in a month. The four-week moving average fell.
• Continued claims fell in the week ending February 5 to below 1.6 million. This is the first time continued claims have been below 1.6 million since 1973. The four-week moving average fell slightly.
• The labor market is in excellent shape in early 2022. The biggest problem is a shortage of labor.

Initial claims for unemployment insurance rose to 248,000 in the week ending February 12, up from 225,000 the previous week (revised slightly higher from 223,000). Initial UI claims rose from around 200,000 per week in late 2021 to a peak of 290,000 in the week ending January 15 as the omicron variant hit the labor market and then declined for three straight weeks before this most recent increase. Even with claims rising in the week ending February 12, the labor market remains very sturdy in early 2022.

The four-week moving average of claims, which smooths out some of the volatility, fell by 11,000 in the week ending February 12, to 243,000. The four-week moving average had risen in January with omicron.

Initial claims jumped to more than 6 million in April of 2020 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 in the spring of 2021 before stabilizing at around 400,000 per week and then started to decline again in August 2021, with an especially large decline in the second half of November. At the end of 2021, they settled in at around 200,000 per week.

The total number of people receiving benefits under regular state unemployment insurance programs (continued claims) fell in the week ending February 5 to 1.593 million; this is the lowest level of continued claims since 1973. Claims for the previous week were revised slightly lower. The four-week moving average of continued claims fell to 1.626 million, an increase of 8,000 from the previous week. Continued claims have been steadily declining for almost a year, with the four-week moving average only increasing twice since May 2021. Continued claims have been falling as unemployed workers leave the program’s rolls, either because their benefits have expired or because they have quickly found a new job. Continued claims peaked at more than 23 million in May 2020 as the pandemic hit the U.S. economy.

The increase in initial claims in mid-February is not a concern. Claims can be volatile during the winter because of the weather, and the four-week moving average continues to fall, after rising in January with the omicron variant. Continued claims are steadily falling and are at their lowest levels in decades.

The labor market is doing extremely well in early 2022. The January jobs report was very good, with an increase of 467,000 jobs over the month, despite the omicron variant. But more importantly, there were big upward revisions to job growth at the end of 2021 in the January report. The three-month moving average of growth through January 2022 was an excellent 541,000, much better than prior estimates had indicated. The unemployment rate rose slightly in January, to 4.0%, but should return to its pre-pandemic level of 3.5% in the second half of this year.

The biggest problem for the job market right now is a shortage of workers. Businesses would like to hire, but can’t find employees, and wages are rapidly rising as businesses compete for scarce labor. The labor force is smaller than before the pandemic by about 1 million, due to early retirements, concern about the coronavirus, childcare and schooling difficulties for parents, and government aid that may have led some potential workers to be choosier in taking a job. Some of these people will gradually return to the labor force over the next year or two, but businesses will need to adjust to a structurally smaller workforce compared to before the pandemic.

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