The number of citizens filing weekly jobless claims for unemployment aid decreased below 300,000 the previous week for the first time in one and a half years. This is a hint that the labor shortage was behind the slower job growth rather than decreasing demand for the workforce. The Labor Department reported the second consecutive weekly decrease. The initial weekly jobless claims are now in the area usually associated with robust labor market conditions. But the labor market still has challenges from shortages of raw materials and workers. These are increasing inflation.
President Joe Biden said, "I have said from the beginning that we cannot fully bring our economy back unless we beat the pandemic — and here, too, we see encouraging signs. With wages rising and our unemployment rate back below 5 percent for the first time since the pandemic struck, it is clear that our economy is getting back to normal despite the global challenges posed by the delta variant."
The initial weekly jobless claims for state unemployment aid decreased by 36,000 to a seasonally adjusted 293,000. This was for the week ended October 9. This is the lowest level in the past one and a half years. At the time, the country was in the initial stages of the coronavirus pandemic. There were drops in weekly jobless claims in Tennessee, Texas, and Florida. The weekly jobless claims grew in Michigan, Missouri, Maryland, Kentucky, and California. A portion of the growth of weekly jobless claims in Michigan was because several car manufacturers paused assembly lines because of an international chip shortage. Rubeela Farooqi, the chief economist at High Frequency Economics, said, "The data support the narrative that businesses are increasingly reluctant to let go of workers amid a severe supply shortage. But it is still not clear if the expected supply surge that failed to materialize in August and September will appear going forward."
The experts had forecasted 319,000 weekly jobless claims for this week. The decrease the previous week was the largest since last year. Anything below 300,000 weekly jobless claims is seen to be in line with a robust labor market. The weekly jobless claims have decreased from a high of 6.149 million last year. The Federal Government also said that nonfarm payrolls have grown by only 194,000 jobs in the previous month. This is the lowest in nearly a year. The stagnancy in employment growth is because of the lack of workers and a mismatch in skill. The government data shows that there were 10.4 million job openings a couple of months ago. The shares on Wall Street were trading higher. The dollar fell against other currencies. US Treasury prices were sideways.
More citizens are coming off the official unemployment rolls. This shows that there is strong demand for labor. The number of citizens getting aid after the initial week dropped by 134,00 to 2.593 million for the week ended October 2. This was also the lowest mark since the past one and a half years. Robert Frick, the corporate economist at Navy Federal Credit Union, said: "A big drop in unemployment claims for the most recent week finally cracked the 300,000 barriers and is the strongest evidence yet that the Covid-19 delta wave has lost its influence on layoffs/ Hopefully, we can quickly resume dropping to the pre-Covid era average of about 200,000."
The total number of citizens getting unemployment aid under all Government programs decreased by 523,426 to 3.649 million for the week ended September 25. This represents the end of the federal government-funded unemployment aid last month. The coronavirus pandemic has caused labor shortages. This is also being seen in other developed economies and has clogged the supply chains. There is hope that more citizens will get back to the labor force driven by the decline in infections, expanded benefits ending, and schools reopening for in-person learning.
Mark Hamrick, the senior economic analyst at Bankrate, said, "With so many jobs available and opportunities to work remote at least some of the time, the good news is that workers stand a reasonable chance of improving their employment situation, including better pay and working conditions. That is what many want."
But the labor market could remain a little shallow for some time. This is because of the growth in self-employment, early retirements, massive savings, record house price increases, and a robust stock market. The labor shortages are jamming the supply chain because there are fewer workers to manufacture goods and raw materials by supplying them to the markets, increasing inflation. Michael Pierce, the US economist for Capital Economics, said, "We are getting more concerned that much of the drop in labor force participation will prove permanent, which is, in turn, a reason to expect the recovery in real activity and employment to disappoint over the coming years, while wage and price growth remain elevated."
In another report, the Labor Department said that the producer price index for final demand increased by 0.5% in the previous month. This is the smallest increase in nearly a year. The index grew by 0.7% in August. Experts had predicted a growth of 0.6%. An increase of 1.3% in the prices of goods caused nearly 80% of the growth in the index. Goods prices increased by 1.0% in August. They were bolstered by energy products such as gas fuels, residential electricity, and gasoline. The cost of Brent crude has increased above $80 per barrel. Natural gas and electric prices have also grown. This shows that energy prices can remain high. Will Compernolle, an economist at FHN Financial, said, "There is no question producers are struggling with supply chain issues and labor shortages, so it is way too early to call the relatively low increases in core PPI a harbinger of a new trend."
The wholesale prices increased by 2.0%, powered by beef. Services increased by 0.2% as an 11.6% growth in margins for lubricants and fuels retailing was a little offset by a drop of 16.9% in airline tickets. There was also growth in equipment and machinery wholesale prices, truck transportation of freight, motor vehicles, and parts. In the past year, the producer price index has grown by 8.6%. This is the biggest year-on-year increase in the past 11 years when the series was revamped. The index increased by 8.3% a couple of months ago. The report comes after there was news of robust growth in consumer prices last month. It was driven by good growth in rents and food and also a variety of other goods.
The producer prices increased by 0.1% the previous month after increasing by 0.3% in August. In the past year, the core PPI grew by 5.9% after increasing by 6.3% in August. The portfolio management fees increased by 1.2%, and healthcare costs increased by 0.2%. Portfolio fees, healthcare, and airfares are factored in the personal consumption expenditures price index. This is the Federal Reserve's preferred inflation measure for its 2% aim. With the PPI and CPI data in hand, experts predict that the core PCE price index will increase by 0.1% in September. This will keep the year-on-year growth at 3.6%.
Neil Dutta, the economist at Renaissance Macro Research, said, "I see this as evidence of a pick-up in employment growth. After all, monthly jobs growth is about the level of hiring less the level of separations. Assuming quits are flat this month as labor supply is released, the drop in claims implies a decline in separations and stronger payrolls."
The weekly jobless claims continue their downward trend, and that is being seen as good news. The minutes of the policy meeting of the Federal Reserve showed that some central banks experts were concerned that the increased rates of inflation could result in longer-term inflation expectations of businesses and households. The producer inflation may be near its peak. The labor shortages may continue for a while.