American unemployment claims dropped this week, signaling a hopeful outlook for the economy after the Omicron variant of COVID ripped through the country over the holidays. New claims unexpectedly surged to 290,000 during the week-ending Jan. 15, which troubled many economists. However, the unexpected leap in claims eased back down 11 percent to 260,000 by the following weekend.
Economists expected a decrease of 25,000 claims; so the final tally exceeded expectations. Jobless claims typically serve as a proxy for layoffs, and layoffs serve as a proxy for overall economic health.
Employment offices also track the data on a four-week moving average scale. The moving average gives a better big-picture analysis of the current state of American employment because it smooths out the graph of potential outliers. The Omicron spike data deserves to be recognized. But it also represents an unforeseen outlier, so it shouldn’t affect future policies too much.
The most recent four-week moving average of new jobless claims was 247,000 — an increase of 15,000 compared to the previous week’s revised average. About 1.675 million Americans, total, received jobless benefits that week.
How is Omicron affecting the economy at large?
Many businesses have had to temporarily close their doors because of lack of workers or lack of foot traffic. Record numbers of workers are calling out sick across all industries.
Whether it be correlative or causative, new jobless claims closely mirrored new Omicron cases as of late. New claims reached a 52-week low back in early December on the tail end of the Delta variant. Week-ending Dec. 4 reported only 188,000 new claims; but then Omicron spiked throughout the nation. Last week’s rise in claims marked the highest bump since last October.
“The surge in COVID cases has created new headwinds for the economy even as tailwinds, including the federal government’s fiscal boosts, are waning,” Bankrate senior economic analyst Mark Hamrick said.
“The detrimental combination of supply chain constraints and the shortage, or lack of availability, of workers amid the Omicron surge is weighing on the nation’s economic recovery,” he added.
Economic outlook based on the labor market and unemployment
All things equal, jobless claims actually float around historic lows at the moment. Businesses, especially low-paying industries and gig markets, desperately need workers. The glut of available jobs is causing higher starting salaries and more incentivized positions for low-wage employees.
It seems that the economy is both in fantastic shape and in peril simultaneously. The December ’21 jobs report reported just a measly 3.9 percent unemployment rate, and yet jobless claims rose starkly in January.
To further incentivize economic growth and encourage cash rather than investments, the Federal Reserve announced an interest rate hike for the first time in three years. The central bank wants to maximize employment before raising rates, so don’t be surprised to see the government push for lower claims in the coming months in order to achieve the rate hike goal.