The number of citizens filing new weekly jobless claims for unemployment aid grew moderately in the previous week. This is in line with the trend at levels consistent with the tightening labor market. Other data showed that economic activity had gathered pace as the year ends. The manufacturing production increased to its top mark in nearly four years in the previous month while homebuilding increased to a nearly nine-month high. The tightening labor market and the strengthening economy have encouraged the Federal Reserve to end the pandemic-era bond purchases in a few months and pave the path for three quarter-percentage-point interest rate increases by December of next year. Federal Reserve Chairman Jerome Powell has said that the economy was making great progress toward maximum employment.
The initial jobless claims for unemployment aid increased by 18,000 to an adjusted figure of 206,000 for the week ended December 11. The jobless claims had declined to 188,000 in the previous week. This was the lowest mark in the past forty years. The experts had forecasted 200,00 applications for the previous weeks. The jobless claims have decreased from a record high of more than six million in early April of the previous year. The applications for jobless claims usually increased around the holiday season. This is because the companies temporarily close. But a great shortage of labor has disrupted the seasonal pattern. This has resulted in huge decreases in the previous weeks' seasonally adjusted jobless claims numbers. There was an increase in applications in Missouri and a massive increase in Kentucky and Virginia. But the jobless claims decreased a lot in Wisconsin, Texas, and New York.
The four-week moving average of the initial jobless claims is considered a better measure of the market trends in the labor market. This is because it smoothes out the week-to-week volatility. It decreased by 16,000 to 203,750 in the previous week. This was the lowest mark in the past forty years. The experts say that the jobless claims will remain around the same levels next year because of the shortage of labor. There were a record eleven million job openings at the end of the previous month. The unemployment rate is at a low of more than twenty months at 4.2%. The shortage of raw materials and workers has restricted home building and manufacturing in the previous quarter. This has held the economy to the slowest growth pace in more than a year.
There are signs that the supply bottlenecks at factories are now starting to ease. In another report, the Federal Reserve said that manufacturing output increased 0.7% in the previous month to the highest mark since January a couple of years ago. The output growth was across the board. There was an increase even in motor sales production. The stock on Wall Street was trading higher. The dollar declined against a basket of currencies. The US Treasury prices increased. Christopher Rupkey, the chief economist at FWDBONDS, said, "The economy is as fully employed as it is going to get for this cycle. The 2022 economic outlook looks to be a good one." Veronica Clark, an economist at Citigroup, said, "We expect further increases in production into 2022 as supply issues ease and backlogs of demand are worked through."
Housing Starts Soar
The homebuilding segment powered ahead in the previous month. Another report by the Commerce Department showed that housing starts increased by nearly twelve percent to an adjusted annual rate of 1.679 million units per month. This is the highest level in the past nine months, but building material shortages are still troublesome. The labor crunch will start to resolve soon. The jobless claims report also stated that the number of citizens who continue to get the aid after an initial week of aid decreased by 154,000 to 1,845 million for the week ended December 4. This was the lowest mark for the so-called continuing jobless claims since mid-March of the previous year.
More than two million citizens were getting aid under all the programs in the last week of the previous month. A job survey showed that the share of the population looking for paid work increased a couple of percentage points to nearly thirty percent in the previous month compared to September. The growth showed a jump among the unemployed to the highest mark since the survey started nearly half a year ago. But the rising coronavirus infections and then a new variant of the virus could discourage some citizens from actively looking for work. Millions of unemployed citizens have remained at home even as generous government-funded employment benefits ended a couple of months ago, and the schools reopened for in-person learning. The workforce is nearly two and a half million below the pre-pandemic mark.
Mark Vitner, an economist at Wells Fargo, said homebuilding is ending the year on a strong note. “We remain optimistic about housing in 2022. Demand should be little affected by the modest increase in mortgage rates, resulting from the Fed's quicker pace of withdrawing the extraordinary stimulus." Rubeela Farooqi, the chief US economist at High Frequency Economics, said, "We expect labor supply constraints to gradually ease over time as the cushion from savings diminishes, although new virus variants pose a near-term downside risk."
Supply Bottlenecks are Easing
The US manufacturing activity declined to a one-year low this month. But here are some signals that factories' raw material and labor supply constraints are starting to ease now. IHS Markit said that the flash manufacturing PMI decreased to 57.8 in the middle of this month from 58.3 in the previous month. This was the lowest mark since December of the previous year. A reading above 50 shows that there has been an expansion in the manufacturing sector. This accounts for more than eleven percent of the economy. The experts had forecasted the flash PMI to increase to 58.5. The manufacturing remains underpinned by robust demand for good and very lean inventories at businesses. But strained supply chains because of the pandemic are a concern. But there are rays of hope.
The survey said, "supply chain delays moderating markedly during the month. The rate of job creation quickened to the fastest since June. The rate of cost inflation softened to the slowest for seven months." But the shortages remained binding the vast services sector. The flash services sector PMI decreased to a reading of 57.5 from 58 in the previous month. The experts had forecasted a reading of 48.5 for the services sector. This accounts for more than two-thirds of the economic activity in the nation. A measure of the service sector input prices increased to 77.4. This was the highest level since the series started more than two decades ago. The mark was 75.7 in the previous month. This was a sign that inflation could remain very high for a while. The consumer prices grew by the most since the past thirty years on a year-on-year basis in the previous month.
Betsey Stevenson, former chief economist and professor of public policy and economics at the University of Michigan, said, "If we filled every single job opening that's out there right now, we'd have employment that was not just well above where we were pre-pandemic, but well above what anyone predicted pre-pandemic. That recovery and employers wanting to hire workers is there. The challenge is that we still have a lot of uncertainty in the labor market. A lot of what economists talk about is churn — people who are leaving jobs more frequently than they used to, exiting the labor market more frequently than they used to."
Both service and manufacturing sector activities slowed down. The overall business activity also cooled in the previous month. The flash Composite PMI Output Index of the survey decreased to a reading of 56.9 from 57.2 in the previous month.