Initial jobless claims last week rose to 185,000 yet remained significantly below the pre-pandemic level as the tight labor market discouraged layoffs, the Labor Department reported on Thursday.

Our preferred measure for new filings for unemployment benefits—the 13-week moving average—continued to trend lower given the persistent labor shortages while demand for workers stayed robust.

A flattening or even a reversal in the layoff trend, though, is lurking as the Federal Reserve continues to clamp down on inflation. That would certainly unwind some of the labor shortage issues as demand slows.

Better employment opportunities are also one of the factors that drove consumer sentiment to increase unexpectedly to 65.7 in April from 59.4 in March, according to the University of Michigan in a separate survey.

But the main catalyst was the drop in oil and gasoline prices since early March, which are well-known for their correlation with the survey’s outcome. The subindex for gasoline prices in the next 12 months plunged to 22.6 in April after spiking to 50.2 in March.

The survey also gauges inflation expectations in the near and longer terms. Both stayed unchanged in April with the 12-month expectation at 5.4% and the five- to 10-year expectation at 3.0%.

Confidence over the government’s ability to fight inflation picked up on the month, likely linked to the Federal Reserve’s recent rate hike and the Biden administration’s release of oil from the Strategic Petroleum Reserve to lessen the impact from rising gasoline and oil prices.

Still, better sentiment does not translate into more spending. Appetites for purchases of major household items and vehicles in the next six months dropped in April, while buying intentions for new homes inched up.

The takeaway

With the high level of uncertainty surrounding inflation, the Fed’s more hawkish policy and geopolitical tensions, the road ahead will be quite bumpy before we can grasp the big picture of the economy through jobless claims and consumer sentiments.