New filings for U.S. jobless benefits last week dropped to the lowest point since 1969 as the tight labor market showed no sign of cooling.
The number of new claims fell to 187,000 from 215,000 in the prior week, significantly below the pre-pandemic level in 2019 of 218,000, according to government data released Thursday.
The claims data showed that the labor market continues to be red hot, but what is different this time, compared to before the pandemic, is that the market is short of millions of workers.
Underneath the top-line number, the total number of continuing jobless claims also decreased to 1.35 million for the week ending March 12, down from 1.417 million in the prior week.
There are a host of reasons for the persistent shortage of workers, including early retirements, a lack of child care and restrictions on immigration.
But as workers reassess their career needs during the pandemic, one other reason is the rising reservation wage, which is the minimum amount of pay that workers are demanding for a given job.
Any solution for the shortage won’t substantially loosen up the market anytime soon. We expect the labor market to stay imbalanced for at least the first half of the year before potential headwinds add upside risks to job layoffs.
One of those headwinds is the possibility of a new COVID surge from the BA.2 variant, which is causing a new wave of cases in the United Kingdom and Europe. The impact, however, is predicted to be temporary—similar to the omicron surge in early January.
The hawkish tone toward inflation taken recently by Federal Reserve Chairman Jerome Powell, along with his reference to the labor imbalance as “unhealthy,” suggested that the Fed will most likely prioritize taming inflation over pushing unemployment to decline further.
Multiple interest rate increases this year will unwind some of the demand pressure on the labor market as a result of slowing aggregate demand as a whole.
