Initial claims for unemployment insurance fell by 26,000 to 239,000 in the week ending June 24, according to the Department of Labor. The four-week moving average of initial claims, which smooths out some of the volatility, was up by 2,000 to 258,000. This is the highest level for the four-week moving average since November 2021, when the labor market was still recovering from the pandemic. Continuing claims fell by 19,000 to 1.742 million in the week ending June 17. The four-week moving average of continuing claims was 1.758 million, down by 13,000 from the previous week. With initial claims up in June but continuing claims down, this means that laid-off workers are quickly finding new jobs.

Initial claims for unemployment insurance have moved gradually higher throughout 2023; they started the year at around 200,000, a very low number. Even with the increase this year initial claims remain quite low on a historical basis, and it is not yet clear if the increase in claims in 2023 is simply the result of a bit more slack in the labor market, or if it is a harbinger of bigger layoffs and an impending recession.

Continuing claims have declined slightly over the past couple of months, after rising slightly in late 2022 and early 2023, suggesting that those who lose their jobs are quickly finding new ones. Job growth remains strong, with the U.S. economy adding more than 280,000 jobs per month on average through May 2023, well above the long-run trend. The unemployment rate was 3.7% in May, up from a more than 50-year low in April of 3.4%. 

We expect a solid June jobs report (to be released on 7/7) with a smaller rise in payroll jobs close to 225K but a rebound in total hours worked. Also, we expect household jobs to rebound by 250K to 350K after May’s 320K decline.  Along with a small rise in the labor force, that would tick the unemployment rate down to 3.6%. 

PNC expects a recession to start in late 2023 or early 2024 as the impact of higher interest rates continues to work its way through the economy. The Federal Reserve is signaling that further increases in the Fed funds rate are coming, notwithstanding the Federal Open Market Committee’s “skip” in the tightening cycle at their meeting on June 14. Both initial and continuing unemployment insurance claims are set to increase in the second half of 2023 as tighter monetary policy becomes an increasing drag on the economy.

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