The Jobs Market Remains Strong, Layoffs Aren't Fully Reflected In Official Data, And The Fed Doesn't Like It

Unemployment claims dropped for the second week in a row, according to data released Thursday by the Labor Department.

"The odds of a sudden drop-off in U.S. economic activity have lessened," said Bill Adams, chief economist for Comerica Bank.

The positive jobs data adds certainty to the prospect of another hike in interest rates as the Fed continues to use monetary tightening to bring down inflation.

The number of claims for the week ended Feb. 25 was lower than the previous week by 2,000 filings: 190,000 people filed for unemployment benefits last week, a drop from 192,000 the week prior and 195,000 the week before that.

This week's numbers add on to January's massive and unexpected increase in hires, which tripled expectations.

“Wage growth is at a level that it actually is too high to be consistent” with the 2% inflation target, Federal Reserve Bank of Minneapolis President Neel Kashkari said Wednesday.

A strong job market continues to defy the Fed's intentions to slow down economic growth by raising the federal funds rate, which is currently between 4.5% and 4.75%. The Federal Open Market Committee will reconvene on March 21-22.

On Wednesday, Fed's Kashkari and Atlanta Fed President Raphael Bostic spoke publicly in support of further increases in interest rates.

“We’re not yet seeing much of a sign of our interest rate increases slowing down the services sector of the economy and that is concerning to me,” said Kashkari.

What About All The Layoffs? While high-profile layoff announcements continued to make headlines through the first months of 2023, these are not becoming visible in the official jobs data.

Related Link: Big Tech Layoffs Are Big News, But Not For The Overall Labor Market — Here’s What New Data Is Showing

Comerica Bank's Adams said that "some of the disconnect between big layoff announcements and low jobless claims could be because tech layoffs disproportionately hit workers on work visas."

Another possibility is that these workers are quickly finding new work or founding their own startups.

While some sectors have been reducing headcounts, other sectors continue to print large labor shortages.

"Growth momentum looks to be holding up in early 2023 better than was feared a few months ago," said Adams.

The economist says that high interest rates will be a headwind for housing and commercial real estate, increasingly weighing on "business financials over the course of the next two years as corporate bonds reset at higher rates."

The Equity Market: The market's reaction to the new jobs report has been both varied and moderate. The S&P 500 started Thursday with a slight drop that improved during the morning to reach an overall drop of 0.26% by noon, affecting ETFs following the index like SPDR S&P 500 ETF Trust SPY and iShares Core S&P 500 ETF IVV.

The Nasdaq Composite was down 0.56% while the Dow Jones was up by 0.29% on the back of a rally around Salesforce CRM, which was up 11.4% after reporting better-than-expected Q4 results and a strong guidance.

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