Unemployment insurance claims dropped to their lowest level in a month, showing signs of health in the U.S. labor market amid a broader slowdown in employment conditions.
Initial claims fell by 1,000 to 219,000 for the week ending Dec. 21, the Labor Department reported Thursday. The four-week average of claims increased by 1,000 to 226,500.
Economists were expecting between 224,000 and 225,000 weekly claims, and markets were down slightly on the news in morning trading, with the Dow Jones Industrial Average losing two-tenths of a percent.
Continued strength in employment and pricing expectations has sent markets tumbling in recent weeks as inflationary pressures continue to dog the economy despite a precipitous fall from 40-year highs over the past two years.
Earlier this month the Federal Reserve increased its 2025 inflation expectation to 2.5 percent from 2.1 percent, as measured by the personal consumption expenditures price index. The Fed also lowered its expectation for unemployment and raised its forecast for gross domestic product growth.
Uncertainty about the path of inflation within the Fed’s rate-setting committee has also gone up, increasing from 8 members to 14 members with a higher uncertainty assessment.
In September, the Fed started lowering interest rates with a decisive half-point cut after leaving them elevated between 5.25 percent and 5.5 percent for the previous year — a move that many saw as a sign that the postpandemic inflation had been whooped.
But the more robust projections and greater uncertainty suggest that inflation may still have a bit of life in it, with some market commentators even saying that the size of the September cut was a mistake.
Fed Chair Jerome Powell called the December rate cut a “closer call” than other recent interest rate decisions, and Fed officials are now expecting only two quarter-point cuts next year instead of four.
“We see the risks as two-sided,” Powell said earlier this month. “Moving too slowly and needlessly undermine economic activity and the labor market, or move too quickly and needlessly undermine our progress on inflation. So, we’re trying to steer between those two risks.”
However, broader disinflationary and unemployment trends continue.
The unemployment rate has risen nearly a full percentage point to 4.2 percent from its 2023 low of 3.4 percent, and the consumer price index, despite ticking up in the last two readings, has fallen to a 2.7-percent annual increase from 9 percent over the past 2 1/2 years.
Currently, 1.3 percent of the labor force is receiving unemployment benefits, the highest share since January 2022, the Labor Department reported Thursday.
More than 1.9 million job seekers are now insured, the highest level since November 2021 when unemployment was descending off of pandemic-induced highs.
Economists are seeing strength in U.S. incomes and spending, which they expect to allow solid growth in 2025.
“U.S. personal income and consumption data should continue to signal rising real incomes,” UBS economist Paul Donovan wrote in a December commentary. “The fact that household incomes are so strong, allowing consumption without use of savings or credit card debt, gives a solid foundation for US economic growth in 2025.”
