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Unemployment Claims Rose Last Week Along With Recession Risks

Daniel Plainview

Updated: November 10, 2022

Jobs market
Editor’s Note:

EDITOR'S NOTE: Unemployment claims rose in yesterday’s report, higher than analyst estimates. New applications for jobless benefits increased by 7,000 for the week. An encouraging sign for the Federal Reserve, as it attempts to slow economic activity to fight inflation, it’s a negative omen for the economy. Higher unemployment is sometimes a byproduct of monetary tightening. It’s one factor that’s likely to rein in spending which, among other factors of contraction, may bring down inflation. The risk, of course, is that the Fed may overshoot its 2% target, collapsing the overheating economy in order to bring down consumer prices. 

The number of new applications for unemployment claims rose by 7,000 to 225,000 last week, a discouraging sign for the economy, the Labor Department reported Thursday.

Rising jobless claims, a proxy for layoffs, are a sign the unusually strong labor market might be starting to react to the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation.

For a lengthy stretch between early August and the middle of September, jobless claims defied expectations and remained low. Since the start of October, though, they have been above 210,000.

"Recent announcement of large layoffs by a growing number of tech companies will show up in higher unemployment claims over the next several months. A rise in weekly initial claims to over 250K will likely be the result, after we get past the temporary rise in holiday hiring, showing some cooling-off in the hot labor market in early 2023," said PNC senior economic adviser Stuart Hoffman.

The Fed has been aggressively jacking up interest rates to tame inflation. Driving up interest rates slows demand and could result in recessionary conditions. Earlier this month, the central bank conducted a huge rate hike to the tune of three-quarters of a percentage point, or 75 basis points. It was the fourth such increase in just five months — a historic pace of increases.

The consumer price index for September clocked in at 8.2%, higher than expected. That shows that inflation has remained sticky despite the monster rate increases, something that signals more on the horizon.

All eyes are on Friday’s CPI report for October — if it shows inflation meaningfully declined, it will be good news for the odds that the economy skirts a recession. But if it once again comes in hot, it would add to the chances of the economy teetering into a recession.

Originally published on The Washington Examiner.

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