Weekly initial unemployment claims are holding at the lowest level since 1970, which is a sign of an extremely tight labor market.
In the week ending June 18, the advance figure for seasonally adjusted initial claims was 229,000, a decrease of 2,000 from the previous week's revised level, said the DOL.
It dipped below 200,000 claims once before in 1999 just before the COVID-19 pandemic, per Calculated Risk’s graph.
How is this a sign of an impending recession? Companies are holding on to their workers for dear life, with one of the lowest unemployment rates in history at 3.8 percent. The unemployment rate was only lower in 1950, dipping to 2.5 percent during the record recovery from World War II, per the FRED graph below.
In fact, the latest JOLTS report showed there were still 11.4 million job vacancies over the past two months. Most headlines touted that the 11.4 million job openings in May as a “severe” drop from 11.9 million vacancies in April, But that wasn’t a sign of weakness. The 11.9 million April number was revised from the original estimate of 11.4 million, which really meant that April to May job vacancies were in essence unchanged showing openings and new hires (6.6 million) were still at record levels, as I said in an earlier post.
This is while consumers’ personal consumption expenditures have risen 6 percent in a year. Consumer spending that makes up some two-thirds of economic activity has skyrocketed since the pandemic; after just 2 percent average annual growth rates since the Great Recession.
The question pending is whether rising interest rates will slow consumers spending sufficiently to reduce inflation, averting reoccurrence of a 1970’s-style stagflation?
The Fed's June Open Market Committee press release was optimistic about the prospects for continued growth.
“Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. (But) Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
We must now wait to see what the Fed’s push to raise interest rates will do to future growth.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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