The number of US citizens filing new jobless claims for unemployment aid decreased to the lowest level in nearly two years the previous week. This shows that the economy was getting momentum representing a great improvement in public health. But supply constraints remain. The lowered labor market is pushing up wages as firms are looking for workers. This is contributing to maintaining high inflation. The labor costs have increased in the third quarter, as shown by other data released a few days ago. The productivity has decreased by its highest speed in more than three decades. The Federal Reserve said it would start to scale back the amount of money it is infusing into the economy through monthly bond purchases this month.
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said, "The fifth straight weekly drop in jobless claims, to a new pandemic low, is consistent with all the other evidence pointing to labor market tightness. With demand reviving post-Delta, the bar for layoffs is high and rising. Claims appear to be on course to reach the pre-COVID level early next year. The biggest drop in productivity since 1981 is a consequence of the Delta COVID hit to growth. It tells us nothing about the underlying trend. We remain optimistic that productivity growth will average 2%-plus over the next couple of years, at least, as firms use some of their abundant resources to start rebuilding the capital stock, following a cycle in which businesses persistently under-invest."
Initial Weekly Jobless Claims Decline
The initial weekly jobless claims for state unemployment aid decreased by 14,000 to an adjusted figure of 269,000 for the week ended October 30, according to the data released by the Labor Department. This is the lowest mark in the past one and a half years when compulsory closures of businesses were being enforced to control the first coronavirus pandemic. The jobless claims have now decreased for more than four consecutive weeks. There were big decreases in filings in Florida and Missouri, which offset the increases in Kentucky and California. Temporary layoffs increased the claims in Kentucky in the automobile sector as manufacturers of motor vehicles cut their production because of a lack of semiconductors.
The summer wave of coronavirus infections due to the Delta variant has declined. This has encouraged more citizens to go to sporting venues, dining out, travel, and dabble in other activities cut short by the comeback in cases. The Delta variant and shortages of materials were contributors to curtailing economic growth to its slowest speed last quarter in more than a year. The jobless claims decreased from a record high of more than six million in early April of the previous year. This is now in a range that is usually seen as consistent with a robust labor market. The number of citizens who continue to get aid after an initial week of benefits decreased by 134,000 to more than two million in the week ended October 23. This was also the lowest level since the middle of March last year.
According to a survey of experts, the nonfarm payrolls are going to rise by 450,000 jobs. The economy has created 194,000 jobs in the previous month. This is the fewest number of jobs created in nearly ten months. The stocks on Wall Street were higher on most accounts. The dollar grew against a basket of currencies. US treasury yields declined. Gus Faucher, an economist at PNC Financial, said, "Firms are reluctant to lay off workers with strong demand and labor in short supply. The big open question is what is happening to the millions of people who lost their benefits in September or saw their benefits drop."
The ADP National Employment Report increased the expectations for growth in job gains. It showed robust growth in private payrolls last month. The Conference Board's labor market differential is obtained from data on buyers' views on whether jobs are hard to get or plentiful. It hit a two-decade high. But persistent labor shortages are an obstacle. The caregiving requirement during the pandemic, fears of getting infected with the coronavirus, career changes and early retirements, as well as an aging population, has left companies with more than ten million unfilled jobs as of a couple of months ago. Federal Reserve Chairman Jerome Powell said, "these impediments to labor supply should diminish with further progress on containing the virus, supporting gains in employment and economic activity."
The vaccine mandate of the White House comes into effect in January. It will apply to federal government businesses and contractors with hundred or more employees. This could add to the shortages of workers. A report from international outplacement company Challenger, Gray & Christmas showed that job cuts announced by employers have grown by 27.5% to more than 22,000 in the past month. This was the highest increase in the past six months. The firm said that 22% of the layoffs were people who did not want to be vaccinated, as their organizations had. Ryan Sweet, an economist at Moody's Analytics, said, "The issue could push people out of the labor force or slow re-entry as people extend their searches for either employer not enforcing the mandate or workplaces where it does not apply."
Organizations are increasing wages as workers are becoming scarce. A second report from the Labor Department showed that unit labor costs, which is the price of labor per single unit of output, increased at an annualized rate of 8.3% in the third quarter after increasing at a speed of 1.1% in the quarter of April-June. The labor costs increased at a rate of 4.8% compared to a year ago. The government report said that the wage increase in the third quarter was the biggest on record. Strong wage growth, combined with increasing rents, is a challenge to the narrative of the Federal Reserve that the high inflation is temporary. Sarah House, an economist at Wells Fargo, said, "The rise will add to concerns about inflation becoming more entrenched and/or the growing risk to profits, as businesses are not able to offset higher wage costs via productivity gains."
Trade Deficit Jumps to Record High
Another report from the Commerce Department showed that the trade deficit increased by 11.2% to a record $80.9 billion a couple of months earlier. Experts polled had forecast a deficit of $80.5 billion. The exports declined by 3.0% to $207.6 billion during the same period. The goods exports declined 4.7% to $142.7 billion. Industrial supplies led to the decrease. The crude oil exports declined by one billion dollars. The capital goods exports also declined. But consumer goods exports were the maximum on record.
Gregory Daco, Chief Economist at Oxford Economics, said, "We are still some ways away from full employment. We should not believe that the current environment is the new normal. We went through a summer lull, where there was a rise in Delta infections, which led to renewed virus fear and renewed care for sick people. We know that was a big constraint on labor supply. We continue to see numerous supply constraints, both on the capital and the labor front. And we expect that as we move towards the end of the year, we are going to see an improving health situation, as well as an improvement on the supply side that should help release some of the labor supply and help generate stronger employment growth."
The number of citizens getting benefits had decreased by about one-third since enhanced government-funded aid expired a few months ago. These decreasing claims bode well for last month's employment report. The numbers are set to fall further in the coming weeks.