But They Remain Low; PNC Expects Solid Job Growth for June

• Initial claims for unemployment insurance rose modestly in the week ending July 2, and there was a small increase in continuing claims in the week ending June 25. But both measures remain near decades-long lows. 

• US job growth is slowing to a more sustainable pace, but employment is not falling. PNC expects job growth of 275,000 in the BLS jobs report for June to be released tomorrow, with the unemployment rate expected to fall to a decades-long low of 3.5%. 

• With a very tight labor market the US economy remains in expansion in mid-2022. Recession risks over the next couple of years remain elevated, however.

Initial claims for unemployment insurance increased to 235,000 in the week ending July 2, up 4,000 from the previous week (unrevised). The four-week moving average of claims, which smooths out some of the volatility, increased by less than 1,000 in the week ending July 2, to 232,500. Initial claims have increased slightly over the last few months, from below 200,000 in April, but remain near decades-long lows and consistent with solid job growth. 

Containing claims rose by 51,000 in the week ending June 25, to 1.375 million. This was the largest one-week increase in continuing claims since November 2021. Claims for the previous week were revised slightly lower, to 1.324 million. The four-week moving average of continuing claims rose by 16,500 in the week ending June 25, to 1.335 million. 

Initial and continuing unemployment insurance claims indicate a slowing in job growth in mid-2022, but not an outright decline in employment. Both measures remain near decades-long lows, although they have started to move up recently. More businesses are reporting layoffs and hiring freezes, but other businesses are still struggling to attract workers, making it easy for laid-off workers to find new employment. Slower job growth in the second half of 2022 will create a bit more slack in the labor market, help alleviate worker shortages, and relieve wage pressures. The open question is whether job growth will merely slow to a more sustainable pace, consistent with labor force growth, or if the economy will fall into recession and there will be outright job losses. 

PNC expects an increase of 250,000 jobs in June when the Bureau of Labor Statistics releases the government’s official jobs report on Friday; this includes an increase of 275,000 in the private sector. PNC expects that the unemployment rate fell to 3.5% in June from 3.6% in May. This would bring the unemployment rate down to its level in February 2020, right before the pandemic, and would match the lowest unemployment rate in more than five decades. 

Job growth is slowing in mid-2022 to a more sustainable pace as the labor market remains historically tight; firms, especially small firms, find it difficult to attract workers; and the Federal Reserve increases interest rates in an effort to cool off economic growth and push inflation back down to 2%. 

The probability of recession in 2022 is low given solid fundamentals, including very strong job growth in the first half of this year. But the situation will become dicier in 2023 as the Fed continues to raise interest rates in an effort to slow inflation. The probability of recession over the next couple of years is around 40%, about double what it was prior to the Russian invasion of Ukraine. The recent plunge in prices for oil and other commodities should help bring down inflation over the next few months and support economic growth.

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.