The number of individuals in the United States applying for initial jobless claims witnessed an unexpected decline last week. The numbers are reaching their lowest point since February. This suggests that the US job market remains relatively constrained despite recent data indicating a slight weakening.
According to the Labor Department’s report on Thursday, the number of initial jobless claims for state unemployment benefits dropped by 13,000 to 216,000 in the week ending September 2. This figure was revised from 229,000 in the previous week. The number of jobless claims hasn’t been this low since the week ending February 11. It represents the fourth consecutive weekly decrease.
At the same time, the number of individuals who are continuing to receive unemployment benefits beyond the initial week decreased by 40,000 to 1.679 million in the week ending August 26, which was revised from 1.719 million the previous week. This level hasn’t been seen since the week ending July 15.
Continued jobless claims, which some economists use as an indicator of hiring activity, had significantly increased from last year to early April, briefly exceeding 1.85 million. However, since then, they have steadily decreased and remain relatively low compared to historical standards.
In general, the jobless claims data suggests that the US job market isn’t at risk of a sudden decline in the short term.
Job Growth Accelerated in August
Last week, the Labor Department reported that job growth accelerated in August. Still, it also revised down employment gains for the previous two months, indicating a slight weakening in labor market conditions.
The latest employment report from the Labor Department was released on Friday. It revealed that 736,000 individuals entered the job market last month. This increase contributed to the participation rate reaching its highest level in 3.5 years. Concerns about an economic slowdown may entice people to rejoin the labor market.
Additionally, the report indicated that there were 110,000 fewer jobs created than initially reported for June and July. Some economists suggest this may indicate business closures that were previously unaccounted for. This report aligns with recent news that job openings in July dropped to their lowest point in nearly 2.5 years.
The unemployment rate rose to 3.8% from 3.5%, but this was primarily due to an increase in the labor force participation rate, which reached its highest level in over three years.
Nonfarm Productivity increased
According to a different report from the Labor Department, the rebound in worker productivity during the second quarter wasn’t as robust as initially stated. However, it still marked the most significant increase in almost three years.
Nonfarm productivity, which measures the hourly output per worker, rose at an annualized rate of 3.5% during the period from April through June. This marked the highest level since the third quarter of 2020 and significantly improved from the -1.2% reading in the year’s first three months. It’s worth noting that the initial estimate for second-quarter productivity was 3.7%.
Labor Market slowing to reach Fed’s 2% inflation target
Additionally, the report indicated that labor costs, which the Federal Reserve closely monitors in its efforts to manage inflation back to its 2% target, increased at an annualized rate of 2.2%. This was slightly faster than the initially reported rate of 1.6%. However, it’s worth noting that this increase was still the slowest since the fourth quarter of 2022.
The labor market appears to be slowing down in response to the Federal Reserve’s significant interest rate hikes, which were implemented to temper demand in the economy.
Strike By Hollywood Actors and Writers
The strike by Hollywood actors caused a reduction of 17,000 jobs in the motion picture and sound recording industries last month. Additionally, the bankruptcy of trucking firm Yellow in early August resulted in 37,000 job losses in the truck transportation industry. Excluding these one-time events, it’s estimated that payrolls would have increased by approximately 241,000 in August.
Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, commented on this, saying,
“This is still not the picture of the labor market we would expect to see if the economy were in danger of decelerating dramatically in the short term, although without question there are signs of moderation.”
Christopher Rupkey, Chief Economist at FWDBONDS in New York, remarked,
“This is probably the final nail in the coffin for the chances of another rate hike by the Fed in September.”