Fears of a recession have been spreading across the economy but June’s job report proves the labor market has been so far immune. Initial unemployment claims, however, have been rising steadily in the past few weeks, recently reaching their highest level this year. Paired with reports of big-name companies initiating layoffs and slowing hiring, these claims are causing concern.
These claims could be a sign of panic but can also be interpreted a very different way. With the layoffs rate holding steadily low at 0.9% and the job openings numbers still very high, the labor market seems to be in a period of depressurization. Interpret this as the labor market going from white-hot to red-hot in terms of job openings, rather than deflating with a sharp increase in unemployment.
Though unemployment claims are rising, they are doing so very slightly from incredibly low levels. In March 2022, initial jobless claims hit their lowest point in 50 years. For the week of July 9th, initial unemployment claims were at 244,000, still a historically low number.
The ratio between ongoing and initial claims has been rising slowly in June, as well. The higher this ratio, the proportionally larger the share of unemployed people that are recently laid off – perhaps a leading indicator of more layoffs to come.
Narrowing in on the layoffs rate, the biggest increases are coming from the buzzy technology sector, which saw a phenomenal rise during the darkest times of COVID-19, and is now adjusting to more traditional consumer spending patterns.
The bottom line: with the Fed attempting to slow the economy to drive down inflation, highly volatile industries like startups will absorb those effects quickly and severely. But, U-6 unemployment, a more encompassing measure of unemployment, is still at an all-time low, implying that people who want jobs are getting them. These jobless claims increases may well be a natural reaction to labor market depressurization.
