Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Initial claims for unemployment ticked down to 190,000 at the end of February—their lowest level in a month. Claims were averaging about 220,000 in the year before the pandemic, so the current level is very low, even by historic standards. Did you know that from 1967-2019, weekly jobless claims averaged 350,000?
I know what you’re thinking: "How are unemployment claims going down when so many companies are laying people off?" Here’s a list of layoffs announced by large companies, courtesy of Forbes.
There are several possible explanations for this:
Workers can find new jobs quickly, thanks to the strong labor market.
Generous severance packages negate the need to file for benefits.
Seasonal adjustments are making claims look lower than they really are.
People are still having trouble applying for unemployment benefits.
I can’t really comment on the last two reasons, so let’s focus on the first two.
I think reason number one is the best explanation for the disconnect between layoff announcements and unemployment claims. According to the BLS, there were 11 million job openings in the U.S. at the end of December. That means there were 1.9 available jobs for every person looking for one, which clearly indicates a strong demand for labor. While that’s the latest data on available jobs, it is a bit old.
The data for the end of January will be released on Wednesday, followed by the February employment report one week from Friday. That said, I don’t expect a dramatic decline in job openings, as most of the hiring continues to come from small businesses, not large corporations.
Since big companies are the ones making the scary layoff announcements, and they are more likely than small companies to give good severance packages, I guess I can buy the second reason. At a minimum, severance packages can delay eligibility for filing for unemployment, even if they don’t remove the need to file at all.
Happy Birthday, Federal Reserve Rate Hikes!
One year ago this month, the Fed starting raising short-term rates in an effort to bring 40-year high inflation down. How’s that worked out so far? Here are the highlights:
The annual rate of inflation—as measured by the Consumer Price Index—reached a peak of 9% in June 2022 but has since come down to 6.4%. That’s not the progress we would have liked, but it’s still progress.
So far, these rate increases have yet to cause a recession, which is also good news. That said, it’s still doubtful the Fed can engineer the "soft landing" it’s looking for, as they’ve had to bring rates up too much too quickly.
Borrowing costs have risen significantly, especially for credit card debt. The average interest rate for credit cards reached a record 19.1% at the end of 2022. The rise in both the costs of goods and the cost of borrowing money has made it harder for consumers to keep spending.
The average 30-year conforming mortgage rate was 4.16% when the Fed started its hikes. After peaking at a little over 7% in November, mortgage rates have been pretty volatile and currently stand at 6.65%. 30-year mortgage rates have no direct correlation to what the Fed does with short-term rates, but as long as inflation is high, mortgage rates will stay high.
To answer the question we started with, the Fed’s rate hikes have pushed inflation lower, just not low enough yet to spike the football. Expect a few more hikes before the Fed stops.