Labor market strength, which also was underscored by some shrinking of unemployment rolls in early December after mostly expanding since October, raises the risk that the Federal Reserve could continue raising interest rates to a higher level and keep them there for a while as it tackles inflation. The U.S. central bank is trying to cool demand for everything from housing to labor to bring inflation back to its 2% target.
A raft of layoffs in the technology sector and interest-rate sensitive industries like housing have not had a material impact on claims so far. Unadjusted claims dropped 4,064 to 247,867 last week, amid big declines in California, Indiana, Ohio and Texas, which offset a large increase in Massachusetts.
Claims fell moderately between the November and December survey weeks, suggesting another month of solid employment gains. Job growth has averaged 392,000 per month this year. Data next week on the number of people on unemployment rolls will offer more clues on the state of hiring in December.Economists believe that companies are likely to cut back on hiring before embarking on layoffs.
"While this could just be indicative of a larger-than-typical amount of people having rolled off the jobless benefits program, it ultimately does not help the labor market loosen unless these persons elect to return to work."
Tight labor market = companies protecting shareholder value over paying better wages