The number of Americans filing new claims for unemployment benefits fell last week, indicating a further tightening of labor market conditions heading into the second quarter, which could contribute to keeping inflation elevated.
Part of the decline in claims back to a more than 53-year low touched in mid-March reflecting a revision of the seasonal factors, a model that the government uses to strip out seasonal fluctuations from the data.
During the COVID-19 pandemic, the Labor Department switched to additive factors in order to seasonally adjust the initial and continued claims data from multiplicative factors. Economists had complained that the factors were less reliable because of the economic shock caused by the coronavirus crisis.
“Now that most of the large effects of the pandemic on the unemployment insurance series have lessened, the seasonal adjustment models are once again specified as multiplicative models,” the Labor Department said in a statement on Thursday.
“Statistical tests show that the unemployment insurance series should, in normal times, be estimated multiplicatively,” said the statement. Initial claims for state unemployment benefits dropped by 5,000 to a seasonally adjusted 166,000 for the week ending on April 2. Claims were at this level during the week ending March 19, which was the lowest since November 1968.
Seasonal factors back then were much different from now, making it difficult to make comparisons. Economists polled by Reuters had forecast 200,000 applications for the latest week.
The government also revised claims data from 2017 through to 2021, which showed the level of filings to be much lower last year. The switch back to multiplicative factors pushed applications down by about 20,000-40,000 for the recent weeks. Claims hit a record high of 6.137 million in early April 2020.
The government said it would use a hybrid of multiplicative and additive seasonal factors while the pandemic remains within the five-year revision period. Multiplicative seasonal factors are assumed to be proportional to the level of filings while additive factors are not affected.
“The message from these volatile and revision-prone data continues to be that the labor market is very tight by most historical standards,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
A severe shortage of workers is keeping layoffs low and boosting hiring. Worker demand is being driven by a sharp decline in COVID-19 infections, which has resulted in restrictions being lifted across the country.