• Initial claims for unemployment insurance increased by 13,000 to 242,000 in the week ending April 29^.
• The four-week moving average of initial claims was up by 4,000 to 239,000.
• Continuing claims decreased by 38,000 to 1,805,000 in the week ending April 22.
• Unemployment insurance claims are holding steady at higher levels than were seen throughout 2022 and face more upward pressure in the months to come

Initial claims for unemployment insurance (UI) increased by 13,000 to 242,000 for the week ending April 29. This is up from a modestly revised prior week’s result of 229,000 (-1000 revision). The four-week moving average of claims, which smooths out some of the weekly volatility, was up by 4,000 to 239,000. Initial claims have been consistently elevated for long enough now that the four-week moving average now also reflects an increase from the sub-200K results that had been the lowest observed for UI claims since the data began in the late 1960s.

Weekly claims are up from exceptionally low levels throughout 2022 which sometimes dipped below 200,000 per week. However, a new plateau in the initial claims results does seem to have formed at close to 245,000. Job losses have begun to spread from the tech and finance industries that had dominated headlines through the end of last year and into the first months of 2023. Headline-grabbing layoff announcements, however, typically take some time to be put into effect. This delay accounts for the recent rise in initial claims, based upon high-profile layoff announcements over that spanned the transition from 2022 into 2023. This effect could also portend another escalation in the months to come, alongside the ever-widening net of jobs cuts spreads across industries.

PNC continues to forecast that the Federal Reserve will hold the funds rate steady after yesterday’s “last” hike of 25 bps to 5.00-5.25 percent. This “pause” will provide one less complicating factor in evaluating the full impact of the past year’s rapid monetary policy tightening pace on labor markets, layoffs, and consumer demand. U.S. labor markets continue to experience exceptionally tight conditions, but the now-sustained increase in UI claims and potential further uptrend as a result of spreading layoff announcements could be the first steps along a path to more balanced labor market conditions. 

Continuing claims for unemployment insurance decreased by 38K in the week ending April 22 to 1.805 million. This result contrasts with the four-week moving average of continuing claims falling by only 4K to 1.828 million. Continuing claims continuing to rise jibes with PNC’s continued forecast of weakening overall economic conditions in the U.S. which will ultimately result in a mild recession starting in the second half of 2023 and running through spring 2024. As more laid-off individuals fail to immediately find other employment opportunities, and thus force initial UI claims to roll into continuing claims, consumer spending habits will be undercut. 

Since between 65% and 70% of U.S. economic growth is dependent upon workers bringing home a paycheck, and then spending that paycheck, overall GDP growth will suffer if a persistence in UI claims manifests. Inflation pressures are also not yet resolved for U.S. households. And so the significant decline in monthly disposable income that accompanies the longer job hunts implied by rising continuing UI claims may force a reckoning between consumer spending habits and dwindling savings, rising debt loads, and current income conditions – ultimately cooling consumption activity through the second half of 2023.

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.