September 22, 2022

Initial unemployment claims rose 5 thousand in the week ending September 17 to 213 thousand after having fallen 10 thousand in the previous week.  Thus far, in the face of rising interest rates and the fear of a recession, employers are reluctant to lay off workers.  They have been short-staffed for so long and find adding to staff so challenging that they seem unwilling to lay off people.

The number of people receiving unemployment benefits declined 22 thousand in the week ending September 10 to 1,379 thousand after declining 1 thousand in the previous week.  Many of those workers who do lose their jobs appear to be getting snapped up by other employers and, as a result, the labor market is not weakening much.  Jobs are just being shifted from one sector to another.

With little change in the number of people receiving unemployment benefits  the insured unemployment rate was unchanged  in the most recent week at 1.0% after having been unchanged in the previous week  It has been at that same rate for the past ten weeks.  Before the shutdown started it was steady at 1.2% so it is still below its pre-pandemic level. At 1.0% it remains close to the lowest level on record for this series that has been around since 1971.  When the labor market begins to shift gears, this rate will start to rise.  That is going to happen in the weeks and months ahead, but it has  not yet begun.

The insured unemployment rate tracks closely  the unemployment rate.   Given the level of  the insured unemployment rate we expect the unemployment rate to be unchanged in September at 3.7%.  We also expect payroll employment to increase by 300 thousand workers in September.  We will get that report on October 7.  Keep in mind that for the economy to slow down enough to reduce wage pressures and, hopefully, translate into a slower inflation rate, the unemployment rate needs to climb from 3.7% currently not just to the 4.0% full employment level, but to about 4.5%.  That means that the insured unemployment rate needs to climb from its current level of 1.0% to 1.8% or so.

Inflation is on the rise and  we expect the Fed  to lift the funds rate to 4.4% by yearend.  That means that short-term real interest rates will be negative for the foreseeable future.  So while real rates are higher, they are still negative.  Negative real rates are unlikely to slow the U.S. economy appreciably.  As a result,  we expect GDP to rise 1.5% in the second half of the year after having declined in the first two quarters of the year.  We also expect to see GDP growth of about 1.5% in 2022.

Stephen Slifer


Charleston, SC