The number of new applications for unemployment benefits unexpectedly dropped by 11,000 to 239,000 last week, the Labor Department reported Thursday.
The labor market has been far outperforming the forecasts of most economists, and jobless claims, which are one of the most reactive metrics to the health of the job market, have remained persistently low even as the Federal Reserve keeps raising its interest rate target — a campaign that was widely feared to threaten a recession.
MANCHIN VOWS 'UNRELENTING FIGHT' WITH BIDEN ON INFLATION REDUCTION ACT'S ONE-YEAR ANNIVERSARY
Jobless claims are seen as a proxy for layoffs — if few people are claiming unemployment insurance, it suggests that not many workers are getting laid off.
Over the past year, jobless claims have typically fluctuated between 200,000 and 250,000.
The four-week moving average of claims was just under 235,000, an increase of about 3,000 from the previous week's revised average.
And while continuing claims jumped a bit last week, the four-week moving average fell to about 1.7 million, the lowest level since early February.
“Any thought that the economy was closer to the cliffs of recession were dashed as the labor markets continue to be tight," said Chris Rupkey, an economist for FWDBONDS. "The economy is back from the brink if that’s what it was because there are no layoffs more than normal."
Additionally, jobless claim numbers might have been a bit inflated over the past few months due to distortions, according to an analysis by economists at Goldman Sachs.
“Two distortions that likely boosted initial claims over the last few months — potentially fraudulent filings in Ohio and expanded eligibility for unemployment insurance in Minnesota — appeared to intensify modestly in today’s report,” the economists said.
The Fed has raised interest rates by a historic degree and at a historic pace over the past year and a half or so in order to squelch inflation. The central bank’s interest rate target is now sitting at 5.25% to 5.50%, the highest it has been since the dot-com bubble more than two decades ago.
Raising rates is meant to depress demand for goods and services and thereby lower inflation. That is why some economists are so perplexed about why the job market has remained so resilient. In fact, the unemployment rate is at an ultra-low 3.5%, matching where it was before the pandemic took hold in 2020.
Gross domestic product growth has also remained above water and has exceeded expectations recently.
Economic growth unexpectedly increased to a 2.4% annual rate in the second quarter of this year, up from 2% the quarter before, the Bureau of Economic Analysis recently reported. Economists had only expected a 1.7% rate.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The report also showed that consumer spending, as measured by personal consumption expenditures, grew at a 1.6% rate — a higher pace than expected. That shows economic activity is still humming despite the rate hikes.
Still, the Fed’s hiking has had a profound effect on the housing market. Mortgage rates have exploded to over 7% in recent weeks, making home affordability much more challenging for potential buyers.