The number of Americans filing new claims for unemployment benefits dropped below 300,000 last week for the first time in 19 months, further evidence that a shortage of workers was behind slower job growth rather than weakening demand for labour.
With the second straight weekly decline reported by the Labor Department on Thursday, initial claims are now in the zone that is generally associated with healthy labour market conditions. But the labour market faces challenges from shortages of workers and raw materials, especially in the auto sector.
“The data support the narrative that businesses are increasingly reluctant to let go of workers amid a severe supply shortage,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
Initial claims for state unemployment benefits dropped 36,000 to a seasonally adjusted 293,000 for the week ended Oct. 9. That was lowest level since mid-March 2020, when the nation was in the early phase of the COVID-19 pandemic.
There were decreases in unadjusted claims in Florida, Texas and Tennessee. Applications increased in California, Kentucky, Maryland, Missouri and Michigan. Part of the rise in Michigan was likely due to the idling of assembly lines by some motor vehicle manufacturers because of a global semiconductor shortage.
Economists polled by Reuters had forecast 319,000 claims for the latest week. A 250,000-300,000 range for claims is seen as consistent with a healthy labour market. Claims have dropped from a record high of 6.149 million in early April 2020.
The government reported last Friday that nonfarm payrolls increased by only 194,000 jobs in September, the fewest in nine months. The cooling in employment growth is mostly due to a dearth of workers as well as a skills mismatch, with government data on Tuesday showing there were 10.4 million job openings at the end of August.
U.S. stocks opened higher. The dollar slipped against a basket of currencies. U.S. Treasury prices were mixed.
SHRINKING UNEMPLOYMENT ROLLS
Still, more people are coming off the state unemployment rolls, indicating strong demand for labour.
The claims report showed the number of people continuing to receive benefits after an initial week of aid plunged 134,000 to 2.593 million in the week ended Oct. 2. That was also the lowest level since mid-March 2020.
The total number of people collecting unemployment checks under all programs dropped 523,426 to 3.649 million during the week ended Sept. 25. That reflected the end of federal government-funded unemployment benefits last month.
Labor shortages, caused by the COVID-19 pandemic, are also prevalent in other advanced economies. With coronavirus infections driven by the Delta variant declining and schools fully reopened for in-person learning, there is hope that more Americans will rejoin the labour force.
The labour crunch could also ease in the months ahead following the expiration of the expanded benefits. But amid increased self employment and massive savings as well as early retirements, thanks to a strong stock market and record house price gains, the labour pool could remain shallow for a while.
The scarcity of labour is choking up the supply chain because there are fewer workers to produce raw materials and goods as well as shipping them to markets, fanning inflation.
In another report on Thursday, the Labor Department said its producer price index for final demand increased 0.5 per cent in September after advancing 0.7 per cent in August. A 1.3 per cent jump in prices of goods accounted for nearly 80 per cent of the increase in the PPI. Goods prices, which advanced 1.0 per cent in August, were last month boosted by energy products and food.
The price of Brent crude has shot above $80 a barrel. Electric and natural gas prices have also risen.
Economists had forecast the PPI gaining 0.6 per cent. In the 12 months through September, the PPI accelerated 8.6 per cent, the largest year-on-year advance since November 2010 when the series was revamped, after surging 8.3 per cent in August.
The report followed on the heels of news on Wednesday of a solid increase in consumer prices in September, driven by strong gains in food and rents as well as a range of other goods.
Minutes of the Federal Reserve’s Sept. 21-22 policy meeting published on Wednesday showed some U.S. central bank officials “expressed concerns that elevated rates of inflation could feed through into longer-term inflation expectations of households and businesses.”
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