Jobless Claims Decline Despite Layoffs, Pointing To Still Tight Labor Markets

Throughout 2020-21, supply chains worldwide had to deal with multiple disruptions thanks to COVID-19. Thanks to lockdowns and the fear of the deadly virus, e-commerce grew exponentially, pushing logistics and supply chain companies to hire more people to fill crucial roles. But as demand dropped in the last quarter of 2022, thanks to inflationary pressures, various companies are laying off people. In January 2023, while big players made lay-off announcements, jobless claims reported by the Labor Department actually declined to pre-pandemic levels, indicating a still-tight labor market.

Initial jobless claims, a proxy for layoffs, fell by 6,000 to a seasonally adjusted 186,000 last week, according to the Labor Department. The 4-week moving average of weekly claims, which smooths out volatility, was 197,500. Claims are up from lows reached early in 2022 but have remained near pre-pandemic levels. In 2019, claims averaged about 220,000 a week. The historically low level of jobless claims stands in contrast to some large companies making layoff announcements.

Dow is laying off about 2,000 employees globally and 3M Co. plans to cut 2,500 manufacturing jobs globally, citing weakening consumer demand and turbulent global markets. IBM plans to cut 3,900 jobs, and software company SAP SE plans to shed 3,000 positions. Microsoft, Goldman Sachs, and Google parent Alphabet Inc. have also announced staff reductions recently. Employers have also reduced their use of temporary workers, a trend that can be a harbinger of broader job losses. Those moves suggest layoffs are starting to spread beyond finance, real estate, and tech sectors that bulked up their staffs earlier in the pandemic.

Continuing claims, which reflect the number of people seeking ongoing unemployment benefits, ticked up to 1.675 million, an increase of 20,000, in the week ending Jan. 14, the Labor Department said. Continuing claims are up from lows touched last spring, suggesting it is taking longer for some to find new jobs. The US labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years.

Key Takeaways

There were 10.5 million job openings in November, down from the peak of 11.9 million in March, but far exceeding the number of unemployed Americans seeking work, a mismatch that has fueled competition for workers. Clearly, the number of individuals looking for new jobs, or seeking re-entry in the job market is lesser than the number of jobs in the market.

One of the reasons for this mismatch could be the increasing wages across the spectrum, especially in the lower end of the labor market. Wages rose 5% from a year earlier to $28.07 for private-sector workers not in supervisory roles in December, according to the Labor Department. Meanwhile, it’s a harsh reality that major corporations are laying off employees, so it remains to be seen how this year will turn out on the job front.

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