New jobless claims drop to 260K after weeks of increases

New applications for jobless aid fell sharply by 30,000 last week after several weeks of increases, according to data released Thursday by the Labor Department.

In the week ending Jan. 21, seasonally adjusted new claims for unemployment insurance totaled 260,000, falling from the previous week’s revised level of 286,000. The four-week moving average of claims rose by 15,000 to 247,000.

After falling below pre-pandemic levels in November, jobless claims rose steadily through January as the omicron variant drove a record-breaking spike in COVID-19 cases. Roughly 12 million Americans missed work at the beginning of January because either they or a loved one they cared for contracted COVID-19, according to Census Bureau data released last week.

“The first decline so far this year in seasonally adjusted new jobless claims is a welcome sign after three consecutive gains,” wrote Mark Hamrick, senior economic analyst at Bankrate, in a Thursday analysis

“The strong growth seen for all of 2021, and in the most recent quarter, is a solid springboard for the year at hand, even as the Omicron variant takes a toll on lives and the economic recovery.”

The emergence of the omicron variant last year upended roaring consumer spending and a strong labor market, both of which had gained steam before COVID-19 cases began spiking in late December. The U.S. economy grew at an annualized rate of 6.9 percent in the fourth quarter of 2021, according to Commerce Department data released Thursday, and the jobless rate sunk to 3.9 percent in December.

The record-breaking climb of COVID-19 cases driven by omicron will likely wipe out much of January’s employment gains and restrain economic growth for the first quarter. Even so, last week’s decline in jobless claims could be a sign of omicron’s easing impact on the economy.

“We think the recent surge in Covid cases continues to prop up claims relative to their pre-Omicron wave level,” wrote Nancy Vanden Houten of Oxford Economics.

“We expect initial claims to gravitate back to the 200k level or lower once the Omicron wave passes, and there continues to be encouraging signs that the surge in new cases has passed its peak. As health conditions improve, we expect layoffs to remain low as employers continue to face difficulty filling open positions.”

Updated at 9:27 a.m.