Overheating: Unemployment Claims Plunge as Businesses Capitulate to Growth

Fewer workers applied for unemployment benefits last week, a sign that employers are clinging to workers amid an economy that appears to be growing much faster than expected.

The Department of Labor said that new claims for jobless benefits rose by just 216,000 last week, the lowest level of claims since February. This is a drop of 13,000 claims from the slightly revised level of the prior week.

Economists had expected claims to climb from the preliminary estimate of 228,000 in the prior week to 238,000. The range of forecasts began at a low of 230,000 and topped out at 240,000, so the Department of Labor’s estimate is below even that of the most bullish analysts.

Claims can be volatile week to week so many economists look to the four-week moving average of claims for a signal about the strength of the labor market. This fell to 229,500 from 237,750 in the prior week.

Initial claims are a proxy for layoffs. The low level of claims and last week’s decline indicates that employers are holding on to workers, likely reflecting the struggle that many businesses had finding qualified applicants for jobs in the aftermath of the pandemic. Job vacancies have declined in recent months but remain at historically high levels. Unemployment in August moved up to 3.8 percent from 3.5 percent, primarily because more Americans decided to join the labor force, pushing up the participation rate.

Continuing claims for benefits provide a signal about how hard it is for workers who have lost their jobs to find new positions. These declined by 40,000 in the week that ended August 26 to 1,679,000. The previous week’s level was revised down by 6,000 from 1,725,000 to 1,719,000. The four-week moving average was 1,701,500, a decrease of 1,250 from the previous week’s revised average.

Equity futures signaled declines for the major stock indexes following the release of the claims data. The hot jobs market may push the Federal Reserve to raise interest rates further than expected or to keep them high for longer. Many Fed officials believe that excess demand for labor could create a renewed risk of inflation staying high or even returning to a much higher pace of price increases.