The number of Americans filing for unemployment benefits rose modestly last week, demonstrating the continued strength of the labor market despite tightening credit conditions.
Unemployment claims increased from 191,000 to 198,000, slightly above the consensus expectation of 196,000.
Pantheon Macroeconomics chief economist Ian Shepherdson said the seasonal patterns pointed to a dip in claims but the shift in the weather - with the past two weeks colder than usual, the first back-to-back chilly spell since late November - was always likely to exert a bit of upward pressure.
“The level of claims remains extremely low, but the cycle bottom probably is now in the past, and looking ahead, the lagged impact of the surge in layoff announcements ought to drive claims substantially higher during the second quarter,” he said.
He noted that layoff announcements lead because firms tend not to make all their job cuts immediately, and also because in many states people receiving severance pay can’t make a claim until it ends.
“But the surge in announcements is huge, so the claims numbers likely will look very different by the end of the second quarter, and perhaps a good deal sooner,” Shepherdson said.
“Claims likely will be more volatile than usual over the next few weeks because Easter seasonals are tricky; follow the trend, not the noise.”
GDP 'still a solid showing' despite downward revision
Meanwhile, US fourth quarter gross domestic product (GDP) was revised down to a 2.6% increase. This was a 0.1% decrease from the 2.7% figure reported in February, with analysts expecting 4Q GDP would be unrevised.
BRI Wealth Management portfolio manager Tom Hopkins noted that, despite the downgrade, 4Q GDP was still a solid showing amid rising interest rates and elevated inflation.
“However, in comparison to the quarter before, 4Q 2022 did show signs that the US economy was losing momentum with business spending slowing and consumer spending posting the lowest growth since 1Q 2022,” Hopkins said.
He said it was key to note that this data was backward-looking and, given the events of 2023, it already feels out of date.
“The continued raising of interest rates by the Fed led to the collapse of Silicon Valley Bank this month which permeated across global financial markets, and led to other institutions going under too, including Credit Suisse and Signature Bank,” Hopkins said.
“We are not out of the woods yet in this banking crisis saga, however, the knock-on effect this will have is a reduction in lending from banks but critically a dampening on consumer confidence likely leading to recession.”
On top of this, Hopkins noted other indicators that the US economy could fall into a recession this year.
“The yield curve is inverted, an indicator that has historically forecast recessions with some accuracy,” he said.
“House prices are softening, and housing is a key swing sector for the economy and whilst the labour markets remain incredibly tight, the unemployment rate did edge up to 3.6% in February.”
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