February 22, 2024

Initial unemployment claims fell  12 thousand in the week ending February 17 to 201 thousand after having declined 7 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 27 thousand in the week ending February 10 to 1,862 thousand after rising 24 thousand in the previous week. This series has gradually been working its way higher.

Given the decline in the number of people receiving unemployment benefits,  the insured unemployment rate fell 0.1% in the most recent week to 1.2% after having risen 0.1% in the previous week  Before the shutdown started in 2020 it was at 1.2% so it is essentially still at its pre-pandemic level.   When the labor market begins to shift gears, this rate will start to rise.  Thus far, the increase has been slow and gradual.

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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 February at 3.7%.  We also expect payroll employment to increase 160 thousand.

Inflation has peaked and is slowing gradually.  As a result we believe that the Fed will leave the funds rate at its current level of 5.5% for a while  .  That means that short-term real interest rates are 1.6% (5.5%- 3.9% inflation) which might finally produce slower growth.  As a result,  we expect GDP to rise roughly 1.8% in both the first and second quarters.  .

Stephen Slifer

NumberNomics

Charleston, SC