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Some see “No Signs of Labor Market Weakness”. Others strongly disagree.
 

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Wolf Street – No Signs of Weakness

Wolf Richter says Unemployment Insurance Drops to Lowest since Sept. 2024, Layoffs Are Low, Show No Signs of Weak Labor Market:

Continued weekly claims for unemployment insurance benefits fell to 1.827 million, the lowest since September 2024, according to the Labor Department today. These continued claims track the total number of people who’d initially 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 claims are relatively low in a historic context. Over the past five 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. But back then, nonfarm payrolls were quite a bit smaller. It indicates that people remain on unemployment insurance rolls a little longer than in 2022-2024 during the labor shortages, and in 2018-2019 during the tight labor market, but not as long as they did at any time in the prior decades.

So despite these layoff announcements that percolate through the media, this unemployment insurance data – both continued unemployment claims and initial unemployment claims – show no signs of a weakening labor market in terms of companies shedding employees.

But job creation has slowed – and companies overall are not adding to their staff in large numbers. It’s still an open question how much of that is related to the crackdown on illegal immigrants that then causes labor scarcity in some sectors where employers have a harder time filling those jobs.

And for people who are looking for a job, there is another issue: That workers are now also clinging to their jobs, after the huge wave of quits during the labor shortages that reshuffled the entire workforce. A person who quits one job to go to another job leaves behind a job opening that the company can choose to fill, which opens opportunities for people looking for a job. There was a huge amount of churn of that type during the labor shortages, but that churn has calmed down. And that makes it harder for people looking for a job to slip into a newly opened slot that a quitter had left behind.

Fed’s Waller Says ‘Weak’ Job Market Supported Rate Cut

The Wall Street Journal reports Fed’s Waller Says ‘Weak’ Job Market Supported Rate Cut:

Federal Reserve governor Christopher Waller, who had been a finalist for the Fed’s top job until President Trump nominated Kevin Warsh as chair, laid out his rationale for dissenting against the central bank’s decision to hold rates steady this week.

Waller cast a dissenting vote in favor of a cut at Wednesday’s meeting. In a statement, Waller said that after three rate cuts to end 2025, the Fed’s policy stance is still restraining the economy, and that the Fed should bring rates still lower in order to cushion a weak labor market.

“Economic data make it clear to me further easing is needed,” he wrote on Friday.

Both Wrong, Different Ways

I agree with Waller on the labor market, but not on the need for a cut. We need to see January through May inflation data to see who is right about inflation. If I am wrong, I will admit it.

As for Wolf, I mean no disrespect, but I strongly disagree. He hints at some of it, but still comes away with the wrong headline.

My lead chart shows plenty of signs of labor market weakness. People who lose their job have one hell of a hard time finding one.

That’s what the lead chart says.

Where Wolf goes seriously wrong is is his assessment of continuing claims.

27+ Weeks Unemployment Plus Continued Claims
 

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Continued claims monthly average and 27+ weeks unemployed

It is a big economic mistake to look at continued claims in isolation, as Wolf and many others do.

Q: Why?
A: It does not factor in people who have been unemployed so long that they lost their unemployment benefits. i.e., they lost their right to file a claim.

It’s a common mistake. I am not aware of anyone else properly adjusting continued claims for expired benefits.

Continued Claims and 27+ Weeks Unemployed Detail
 

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Continued claims monthly average and 27+ weeks unemployed details

Continued Claims and 27+ Weeks Unemployed Details Analysis

• Continued Claims Monthly Average: 1.89 million
• 27+ weeks unemployed: 1.95 million
• Continued Claims Plus 27+ Week Unemployed: 3.84 million

The numbers are much worse than they look.

Q: Why?
A: Most states offer 26 weeks of unemployment. The 3.84 million figure fails to count all of those in states that offer fewer than 26 weeks unemployment.

Five Factors Making Things Worse

1. The self-employed have no benefits and cannot file an unemployment claim.
2. Tariffs hit small businesses and the self-employed disproportionately.
3. Immigrants are hesitant to file a claim, even those who have been working here for years.
4. Illegal immigrants are highly unlikely to respond to BLS phone calls regarding unemployment. This means the unemployment level itself is undercounted.
5. Twelve states have a maximum of 21 weeks of benefits. Seven states, including Florida, offer 16 weeks of benefits or less. Once someone maxes out benefits, they drop off continued claims counts.

At a minimum, continued claims are logically undercounted by a minimum of 2 million. That is the number of of 27+ week unemployed, plus everyone in point #5 above.

To see no weakness in continued claims is simply not seeing what’s happening.

Returning to Waller

“Economic data make it clear to me further easing is needed,” he wrote on Friday.

Good Lord.

Please note The Fed Has Missed Its Inflation Target on Ten Different Measures:

The Atlanta Fed tracks various inflation targets. Let’s have a look.

OK, Waller wants to look ahead. But only selectively, on jobs.

A falling dollar adds to inflation. So will rising crude prices, assuming I am right about oil prices having bottomed. Tariffs have not fully hit yet.

And unless I am crazy (maybe I am), health care and tax rebates are going to fuel inflation shortly.

I will discuss tax refunds next week. So, let’s wait an see who is right about inflation, and jobs. Had the Fed cut, I think yields on the long end would have soared.

Related Posts

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“Look at all the business we are doing,” says Trump.

January 30, 2026: PPI Producer Price Index Inflation Jumps 0.7 Percent Led by Services:

Yesterday, Jerome Powell prematurely praised a decline in services inflation.

For a look at what health care will do to the PCE price index, please see Expect a Big Divergence This Year Between CPI and PCE Inflation:

Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.

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