- Weekly unemployment claims fall by 16,000 to 193,000
- Continuing claims fall by 29,000 to 1,347 million
- GDP contraction in second quarter not revised by 0.6%
- Gross domestic income revised downwards towards GDP
WASHINGTON, Sept. 29 (Reuters) – The number of Americans filing new jobless claims fell to a five-month low last week as the labor market remains resilient despite mounting headwinds from sharp Federal Reserve rate hikes and dwindling demand .
The Labor Department’s weekly unemployment report on Thursday, the most up-to-date data on the health of the economy, also showed the number of unemployed to shrink to its lowest level in just over two months in mid-September. That raises the risk that the unemployment rate will fall this month, keeping the Fed on its aggressive monetary policy tightening path.
“The Fed will not slow the pace of its rate hikes yet by 75 basis points in November and 50 basis points more in December, a virtual certainty,” said Christopher Rupkey, chief economist at FWDBOUNDS in New York.
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“The Fed will keep going until something breaks, but so far nothing is breaking except the stock market and early signs that house prices are beginning to fall.”
Initial state unemployment benefit claims fell 16,000 to a seasonally adjusted 193,000 for the week ended September 24, the lowest level since April. The data for the previous week was revised to show 4,000 fewer applications filed than previously reported. Economists polled by Reuters had forecast 215,000 applications for the past week.
While there are reports of some companies laying off workers, economists say most employers are hoarding labor after experiencing difficulties hiring in the past year as the COVID-19 pandemic forced some people out of the workforce, in part due to prolonged illness caused by the virus.
They expect companies to backtrack on hiring before resorting to widespread job cuts. Hurricane Ian, which hit Florida on Wednesday, could disrupt claims in the coming weeks.
“The message here is still a historically tight job market, with companies retaining employees,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Unadjusted claims fell 12,642 to 156,060 last week. There was a sharp drop in filings in Michigan, as well as notable declines in New Jersey, New York and Missouri. They more than offset the increases in Massachusetts and Ohio.
The Fed wants to reduce demand for labor to bring inflation back to the US central bank’s target of 2%. The excessive rate hikes increase the recession risk.
Shares on Wall Street were lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
TIGHT LABOR MARKET
The Fed bank raised its key rate by 75 basis points last week, the third consecutive rise of that magnitude, and signaled further large hikes to come this year. Since March, the Fed has raised its key rate from almost zero to the current range of 3.00% to 3.25%.
At the end of July, there were 11.2 million job openings, with two jobs for every unemployed person.
The claims report showed that the number of people receiving benefits after a first week of aid fell by 29,000 to 1,347 million in the week ending September 17, the lowest level since July. The so-called ongoing claims data, indicative of hiring, related to the week the government surveyed households about the unemployment rate in September.
Ongoing claims fell by 65,000 between the August and September survey periods. Unemployment rose in August from 3.5% in July to 3.7% in August.
The Fed last week raised its median forecast for the unemployment rate this year to 3.8% from its previous projection of 3.7% in June. It raised its estimate for 2023 to 4.4% from the 3.9% projected in June.
Despite the strong labor market, the economy is struggling.
A separate report from the Commerce Department on Thursday confirmed that second-quarter gross domestic product fell by an unrevised 0.6% year-on-year. The economy shrank by 1.6% in the first quarter.
Details of the third GDP estimate were mixed. Consumer spending, which accounts for more than two-thirds of US economic activity, was stronger than previously estimated.
But corporate profits, wages and owner’s income were revised downwards. As a result, gross domestic income (FDI) growth, which measures economic activity based on incomes earned and the costs incurred in producing GDP, was sharply revised down to 0.1% from its previous level. reported rate of 1.4%.
In principle, GDP and FDI should be equal, but in practice they differ because they are estimated from different and largely independent source data. Historically, GDP has been revised in the direction of FDI, and this year marked a reversal of the trend.
The average of GDP and FDI, also known as gross domestic production and considered a better measure of economic activity, was revised downwards to show that it fell by 0.3% instead of 0.4 %, as previously reported. It fell 0.4% in the first quarter, revised downwards from the previously reported growth rate of 0.1%.
The government also revised GDP data from the fourth quarter of 2016 to the end of 2021, which showed that the gap between GDP and FDI in 2021 was only -0.6% of GDP. The so-called statistical discrepancy was previously reported at -2.3%.
The revisions also showed that the economy’s recovery from the COVID-19 pandemic was much stronger than initially thought, but the recession remained the deepest on record.
In addition to rising borrowing costs, inventories are also dampening the economy.
A sharp slowdown in the pace of inventory building from the first quarter was responsible for the GDP weakness in the April-June quarter. But companies are sitting on a larger inventory of goods than previously estimated.
“Stocks are financed with short-term borrowed money, which makes them the most sensitive to Fed policy,” said Chris Low, chief economist at FHN Financial in New York. “Businesses have a growing financial incentive to austere them. They haven’t even started austerity yet and if they do, if they austere quickly, the recession will be deep.”
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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci
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