If the labor market is weakening, it’s on the job-creation side of the equation, maybe in part due to AI.

By Wolf Richter for WOLF STREET.

Initial applications for unemployment benefits (“initial claims”) in the week through Saturday bounced back to a still relatively low 236,000, from the outlier-plunge last week, seasonally adjusted, that had caused me to note, “initial unemployment insurance claims were a doozie that’ll reverse next week,” and they did today.

And I had said: “Obviously, one or more big states didn’t get their claims data filed before deadline, this having been the week of Thanksgiving, which is what caused this plunge in claims. But that data gets picked up in the next week, and so we’ll see a spike in claims, which will undo part or all of today’s plunge.” And they did today.

Which is why we look at the four-week average, which largely irons out the week-to-week squiggles, and which ticked up to 216,750, seasonally adjusted, which is historically low, and in the same low range that it has been in for the past four years.

This is administrative data, not survey-based data. Freshly laid-off people filed these applications for unemployment insurance at state unemployment agencies, which then reported them to the US Department of Labor by the weekly deadline, which then combined the data and published it today.

In a longer timespan going back to the 1970s, initial claims are very low, despite the growth of nonfarm payrolls over the decades. They were lower only during the tight labor market of 2018 and 2019 and during the labor shortages coming out of the pandemic.

Layoffs show no signs of a weakening labor market. If the labor market is weakening, it’s on the job-creation side of the equation.

We have also consistently seen that churn in the labor market has calmed down dramatically from the pandemic spike, with relatively few people quitting, with retirements being down, with layoffs & discharges being relatively low. As fewer people are leaving their jobs, they leave fewer job openings behind, and fewer people need to be hired to fill those newly opened jobs. While job openings remain relatively high – they’re at the level of the peak before the pandemic – there is a lot less turnover in the labor market, so it’s harder for people who are out of job to find a job, all discussed here.

This greater difficulty for laid-off people to find a job, and to spend more time looking for a job, shows up in the continued claims for unemployment insurance – but even those have improved recently.

Continued claims for unemployment insurance, also released today by the Labor Department, track people who applied for unemployment insurance at least a week earlier and are still claiming unemployment insurance because they still haven’t found a job.

These “continued unemployment claims” plunged by 99,000 in the latest week – a huge outlier plunge that will at least partly reverse in a week or two – to 1.838 million, the third week in a row of declines, seasonally adjusted (blue in the chart below).

These continued claims are now down by 130,000 from the recent high at the end of July.

The four-week average fell for the third week in a row to 1.918 million (red).

These continued claims are relatively low in a historic context. Over the past four decades, it’s only during the tight labor market in 2018 and 2019 and in the years of the labor shortages in 2021 and 2022, that the level was lower – despite the much larger nonfarm payrolls.

It indicates that people remain on unemployment insurance rolls somewhat longer than in 2022-2024 and in 2018-2019, but not as long as they did in the prior decades.

So layoffs are low, but once laid off, it takes people longer to find a job as companies have slowed their hiring, but even that has improved since the summer.

AI is turning out to be a further complication for people who’ve graduated from college and are trying to start their careers.

The CEO of Intercontinental Exchange (ICE), Jeffrey Sprecher talked about it in an interview. His company has rolled out AI tools for its staff years ago. He said the AI tools have made his people more efficient. The company hasn’t “necessarily eliminated any positions or what have you,” but the company slowed down hiring for “these kinds of entry-level jobs. They have been getting automated in many cases, where somebody might have had a junior person doing something,” he said.

“And so I have a lot of friends that have children that are graduated from college – good colleges with good degrees – that are having problems and their friends are having problems entering the workplace,” he said.

“I see that because I look at our own behavior, which is we’re kind of slow-walking some of that hiring now because we’re using these tools.”

College graduates having a hard time finding a job is now a wider issue, especially because AI tools have reduced somewhat the number of entry level jobs. But college graduates who have not worked the minimum amount of time are not eligible for unemployment insurance, and are not in the unemployment insurance data here. But they’re in the unemployment figures of the jobs report.

 

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:

WOLF STREET FEATURE: Daily Market Insights by Chris Vermeulen, Chief Investment Officer, TheTechnicalTraders.com.