Initial claims for unemployment insurance fell by 9,000 to 228,000 in the week ending July 15, a second weekly decline and the lowest since mid-May. The four-week moving average of initial claims, which smooths out some of the volatility, was down by 9,000 to 238,000, reversing the rise in June.  Continuing claims jumped by 33,000 to 1.754 million in the week ending July 8 but the four-week moving average of continuing claims was down by 2,000 to 1.732 million, its lowest level since mid-February. The insured unemployment rate held steady at a very low 1.2% in the week ending July 8.

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 an 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 over the past four months, after rising slightly in late 2022 and early 2023, suggesting that those who lose their jobs are quickly finding new ones.

Payroll job growth remains strong this year, with the U.S. economy adding more than 250,000 jobs per month, on average, through June 2023, well above the long-run trend. The unemployment rate was 3.6% in June, remaining close a more than 50-year low in April of 3.4 percent.

PNC expects a shallow recession to start in late 2023 or early 2024 as the impact of higher interest rates continues to work its way through the economy. Also, the resumption of student loan principal and interest rate payments stating in October (estimated between an average of $350-$400 per month) for close to 27 million borrowers and the cancellation by the SCOTUS of Biden’s $20K debt cancellation are both moderate negatives for consumer spending in the final holiday quarter of this year and in 2024. That is built into our forecast for a shallow recession.

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. We expect a 25 bps hike to 5.25-5.50 percent at the FOMC’s July 26 meeting. 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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