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Jobless Claims Steady at Pre-Covid Levels

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Thursday, December 30, 2021

For the third time in six weeks, Initial Jobless Claims have come in below the psychologically satisfying 200K number: 198K new jobless claims were made in the past week. This is still off the pandemic low seen the first week of December, which was 188K.

But a bit of historical context is in order: for years we’d fought to get back to the 200-225K range following the Great Recession of the late Aughts. Not a full year after we’d gotten there (and below), Covid-19 reared its ugly head.

This is not a fluky number, either: the previous week was revised upward, but only to 206K. We’re nicely range-bound going into a new year. Of course, there is plenty of seasonal static regarding jobless claims, what with temporary hires for the holiday shopping (and shipping) season potentially having moved the needle over the past several weeks. But however you slice it, sub-200K new claims is a good omen for the U.S. labor market.

Continuing Claims were even better: 1.72 million is now back to historic low levels we were celebrating back in February 2020 — mere weeks ahead of the pandemic breakout. These longer-term claims are reported a week in arrears from initial claims, which suggests next week should retain the strong narrative going forward. Should the subsequent Omicron scare put a dent in these jobless claims figures a few weeks from now, currently the economy is expecting that will have been a temporary condition.

To wit, the S&P 500 yesterday finished its regular trading session with its 70th record closing high — its best performance since 1995. The Dow also found a new closing high Wednesday afternoon, while the Nasdaq and Russell 2000 remain a couple to a few percentage points away. But we’ve still got a few days of the “Santa Claus Rally” to enjoy — typically, these run through the first few sessions of the new year — so the robust economy with strong employment metrics might expect further bidding up in the near term.

Next week brings us December’s employment numbers from the private sector (ADP - Free Report) and U.S. government (BLS). Currently, we’re seeing a real bifurcation among both reports, with last month’s private sector read more than double that of non-farm payrolls. We may also expect big revisions from the previous two months, as we have seen these become commonplace in 2021. In short, we may have seen another half-million or so hires last month, which would help bring the Unemployment Rate down close to 4%.

Currently, the biggest headwinds to the market appear to be the rapid spread of the Omicron variant of Covid — which has now sent the weekly average of new coronavirus cases above 300K for the first time ever in the U.S. — and the federal governments struggle to pass the second half of its Build Back Better program, which would include childcare provisions for working families and clean-energy development, among other things.

But Omicron looks relatively benign, especially for those vaccinated, and Build Back Better may yet get passed in a slimmer, less costly form. So even our current bad news has a silver lining.

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