Another drop in claims adds to slowly brightening labor picture

Summary

The 33K drop in jobless claims to a nine-week low of 779K adds to the evidence that thelabor market's recovery is getting back on track. Tomorrow's jobs report is likely to furthersuggest that the worst of the winter-slowdown may already be behind us.

Drifting Lower

New filings for unemployment insurance fell for a third straightweek at the end of January, dropping 33K to 779K. As we movefurther away from the volatility surrounding the end-of-yearholidays, the trend is becoming clearer: the pace of layoffs is easingonce again. Although not seasonally adjusted, claims under the Pandemic Unemployment Assistance program fell by 55K to a totalof 349K.

Continuing claims for regular state benefits continued to fall forthe week ending January 23, while recipients under all programs,including extended benefits, fell by 486K the week ending January16 (most recent available). While that suggests some unemployedpersons may be getting back to work, some of the decline may alsobe symptomatic of gaps in coverage surrounding programs beingextended at the last minute in December.

Payrolls to Show Further Evidence of Jobs MarketGetting Back on Track

The decline in new claims in recent weeks adds to the evidence thatthe worst months for the labor market could very well be behindus. Hiring picked up more than expected in January according theISM surveys and ADP reports, while job postings according to Opportunity Insights also turned higher in January. Vaccinationshave been gathering pace and more fiscal support has started to find its way into the economy, with likely more to come.

Still, tomorrow's employment report is likely to show that the labormarket remains in a delicate position. We expect to see job growthof around 60K in January. That barely puts a dent in the 9.84M job deficit since February. However, considering the backdrop of theweeks leading up to the survey—record hospitalizations, ongoingrestrictions and uncertainty that another major relief packagewould make it across the finish line—a resumption in hiring wouldshow the recovery is getting back on track.

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