Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / What Falling Jobless Claims Signal for Summer Hiring
Transcript
- Lucas: Initial jobless claims dropped to 215,000 last week. That's the lowest reading we've seen in about two months. Luna: Right, and that's notable because claims had been creeping up in April and May. So this reversal—does it mean the labor market is tightening back up? Lucas: Maybe, but I think we need to be careful. The four-week moving average is still around 224,000, which is a bit higher than where we were in March. One week doesn't make a trend. Luna: Still, 215,000 is low by historical standards. Pre-pandemic we'd have called that a very tight labor market. Lucas: Absolutely. And that's the puzzle right now. The unemployment rate is 4.3 percent, which is up from the lows of 2023. But layoffs—as measured by initial claims—are essentially nonexistent. Companies are holding onto workers. Luna: So the softness in the unemployment rate isn't coming from people getting fired. It's coming from more people entering the labor force and not finding jobs immediately. Lucas: Exactly. Labor force participation has been ticking up. We saw it in the May jobs report—the participation rate held near post-pandemic highs. So you have more people looking, and that mechanically pushes the unemployment rate up, even if hiring is still positive. Luna: And hiring is still positive. Nonfarm payrolls added about 172,000 in May. That's not booming, but it's solid. Lucas: Solid enough. The question is whether that pace can hold through the summer. Job openings in the JOLTS report ticked up slightly to 7.594 million in May, but that's still well below the 9 million plus we saw in 2022. Luna: So the picture is: low layoffs, decent but not great hiring, and more workers coming in. That's kind of a Goldilocks scenario, isn't it? Lucas: The Fed would love that. It means wage growth can moderate without a spike in joblessness. Average hourly earnings were up 4.1 percent year-over-year in May—still above the Fed's comfort zone, but drifting lower. Luna: And the claims data is the most real-time indicator we have. The Fed's decision-makers are definitely looking at that number each week. Lucas: They are. And if claims stay around 215,000, that tells them the labor market isn't cracking. But if we see a sustained move above 250,000, that's a different story. Luna: What about continuing claims? Those have been a bit sticky, right? Lucas: Yeah, continuing claims—people who've been collecting for more than a week—have been hovering around 1.82 million. That's up from a year ago. It suggests that while layoffs are low, the unemployed are taking longer to find new jobs. Luna: So the duration of unemployment is stretching out. That's consistent with the idea that hiring has slowed. Lucas: Exactly. And that's the nuance the headlines often miss. The low initial claims get the attention, but the continuing claims show a bit of friction in the reemployment process. Luna: So for the Fed, the question is: does this keep them on hold? The fed funds rate is at 3.63 percent—they've been holding since January. Lucas: I think it reinforces the hold. Core PCE just came in at 3.4 percent, which is still too high for them to cut. And as long as the labor market isn't collapsing, they can afford to wait. Luna: But if claims keep falling and the unemployment rate starts to dip back toward 4 percent, does that change anything? Lucas: If that happened, it might signal that the economy is reaccelerating. That would actually argue against cutting rates. But I don't think we're there yet. Luna: So the low claims are a 'good news is good news' story for now. Lucas: Broadly, yes. And honestly, if walking through the economy with us has made something click—if today's episode was worth the price of a coffee to you—that's the link. It's buy me a coffee dot com slash fexingo. Luna: Yeah, we keep this show ad-free, and listener support is what makes that possible. No pressure, just a simple way to help if you find value here. Lucas: Exactly. And to bring it back to the data—one thing I'm watching is whether the claims drop was driven by seasonal adjustment quirks. The week containing Juneteenth can be weird. Luna: Right, the seasonal factors might have underestimated the holiday effect. So next week's number will be really important to confirm the trend. Lucas: Exactly. If we get another week around 215,000, then we can talk about a genuine tightening. But if it bounces back to 225,000 or 230,000, then last week was just noise. Luna: And that's the challenge with weekly data—it's noisy. But it's also the most current read we have. Lucas: Right. The Fed gets the jobs report once a month. They get claims every Thursday. So they're definitely using this to triangulate. Luna: Speaking of the jobs report—the next one is for June, due out in early July. What are you expecting? Lucas: I think we'll see another month of around 150,000 to 180,000 payroll gains. The unemployment rate might hold at 4.3 percent or tick down slightly. Wage growth probably moderates a bit more. Luna: So nothing that would force the Fed's hand either way. Lucas: Exactly. The story of 2026 so far is an economy that's cooling, but not collapsing. And the labor market is the centerpiece of that narrative. Luna: All right, we'll be watching claims next Thursday. Thanks for the breakdown, Lucas. Lucas: Thanks, Luna. And thanks to everyone listening. We'll be back tomorrow with another angle on the macro picture.