as Labor Market Remains Extremely Strong

• Initial claims for unemployment insurance rose slightly to 202,000 in the week ending March 26.
• After increasing earlier this year with the omicron variant, claims have returned to their pre-pandemic level of around 200,000 per week.
• Continued claims fell to 1.307 million, their lowest level in more than five decades.
• The labor market is very strong in the first quarter of 2022.

Initial claims for unemployment insurance rose slightly to 202,000 in the week ending March 26, up from 187,000 the previous week. The four-week moving average of claims, which smooths out some of the volatility, fell to 208,500 in the week ending March 26, down from 231,000 in the four weeks ending February 26. This bodes well for another solid payroll jobs gain near 450,000 for March to be reported tomorrow morning. Initial claims for unemployment rose in early 2022 to close to 300,000 as the omicron variant hit the labor market, but more recently have returned to around 200,000 per week. This is where initial claims stood before the pandemic!

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 by 35,000 in the week ending March 19 at 1.307 million. This is the lowest level of continued claims since 1971. The four-week moving average of continued claims fell to 1.371 million, a decline from 1.432 million the previous week. This was the lowest level for the four-week moving average since February7,1970. Continued claims are at decades-long lows as unemployed workers leave the program’s rolls, either because their benefits have expired or because they have quickly found a new job. After peaking at more than 23 million in May 2020, state continued claims have now moved to their lowest levels since the early 1970s.

The labor market remains in excellent shape in the first quarter of 2022. Demand for labor is very strong, and with the labor force smaller than it was before the pandemic, firms are competing for workers and bidding up wages. Employment increased by an average of almost 600,000 per month in the three months through February, well above the pre-pandemic pace of around 150,000 per month. Total employment fell by 22 million in March and April 2020 as the pandemic hit the U.S. labor market; since then the economy has added back around 20 million of those jobs. The U.S. should return to its pre-pandemic level of employment over the summer. The unemployment rate, which peaked at almost 15% in April 2020, was 3.8% in February. It should return to its pre-pandemic level of 3.5% later this year.

The Federal Open Market Committee raised the fed funds rate by a quarter of a percentage point earlier this month, the first in what is expected to be a series of rate increases. The FOMC wants to raise interest rates steadily over the next couple of years to slow economic growth enough to bring down inflation, which is much higher than the committee would like, but not by enough to push the economy into recession. This task has been exacerbated by the Russian invasion of Ukraine, which has added to inflationary pressures but is also going to weigh on U.S. economic growth. The central bank has a difficult task ahead of itself but is more likely than not to successfully complete it.

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