How strong is the labor market? Surge in layoffs raises questions ahead of key jobs report

Jobless claims are higher than previously thought, according to revised Labor Department figures released Thursday, a potential indicator that the labor market may be weaker than expected. 

The number of Americans filing for unemployment totaled 228,000 last week, well above analysts’ expectations. Initial jobless claims reached 246,000 the week prior up from the previously reported 198,000, according to figures revised to account for seasonal changes in hiring.

The updated numbers reveal an additional 48,000 jobless claims in the previous week, indicating that weekly layoffs are actually above pre-pandemic levels.

Why layoffs soared in March

Despite a steady stream of corporate layoff announcements, jobless claims stayed relatively flat and below pre-pandemic averages of roughly 200,000 per week.

The new data “makes the case that the U.S. labor market has been weakening since the beginning of February of this year, something that was not the case with the previous seasonal factors,” Raymond James chief economist Eugenio Aleman said in a note.

Trouble under the golden arches: McDonald’s to close offices ahead of layoff notices: report

With the revised figures, jobless claims have surpassed 200,000 for nine straight weeks, an uptick from last year’s record-low unemployment figures. Continuing jobless now sit at 1.82 million, the highest figure since December 2021. Still, unemployment remains relatively low — 3.6 percent in February, according to the Labor Department — and employers still struggle to fill open roles.  

Robert Frick, corporate economist at Navy Federal Credit Union, said the figures are “not another crack in the labor market.” He noted that last week’s claims fell by 18,000 from the previous week.

Is the job market than weaker it seemed? 

“It will take a few weeks to tell if, under the new formula, claims were overestimated or underestimated, but it looks now like they were underestimated, but still not above historical averages,” Frick said in a note. 

Goldman Sachs analysts wrote that the increase represents “the end of a technical distortion rather than a sharp jump in the true pace of claims.”

Tech woes: Apple to lay off small number in retail teams

Economists closely watch unemployment claims to gauge the strength of the economy. 

The new layoffs data also comes one day before the Labor Department’s March jobs report, which economists expect to show a slight slowdown in job growth without a decline in the unemployment rate. The U.S. added a stunning 501,000 jobs in January with a stellar gain of 301,00 jobs in February.

Will this force the Fed to halt rate hikes?

The Federal Reserve has been raising interest rates at a rapid pace in an effort to weaken the job market and drive down demand that helps drive inflation. If jobless numbers grow, the Fed might not need to raise rates again, experts said. 

But if the economy cools too much, Americans could be staring down mass layoffs and a recession, highlighting the balance the Fed is trying to strike. 

Political bind: How Jerome Powell’s economic moves put pressure on Biden

All eyes are on Friday’s jobs report, which will paint a more complete picture of the U.S. economy. 

Federal Reserve Chairman Jerome Powell has insisted that short-term economic “pain” may be necessary to ensure historic inflation doesn’t stick around. 

Fed officials expect the unemployment rate to reach 4.5 percent by the end of the year, representing millions of layoffs. Progressive lawmakers have cited those figures in criticizing the Fed’s approach, arguing that the central bank is engineering a recession. 

“There are real costs to bring inflation down to 2 percent, but the costs of failing are much higher,” Powell told reporters last month.    

Progressive pushback: Democrats, worried about job losses, push back on more Fed rate hikes 

Several large companies, particularly those in the tech sector, have announced mass layoffs. 

The number of planned layoffs in March jumped 15 percent from February and are up 319 percent compared to the same period last year, according to a Thursday report from employment firm Challenger, Gray & Christmas. Thirty-eight percent of announced layoffs are from tech companies.

“With rate hikes continuing and companies’ reigning in costs, the large-scale layoffs we are seeing will likely continue,” Andrew Challenger, a vice president at the firm, said in a statement.