The number of Americans filing new claims for unemployment benefits dropped to a 19-month low last week, pointing to a tightening labour market, though a shortage of workers could keep the pace of hiring moderate in October.
The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed state unemployment rolls shrinking significantly early this month.
“The labour market is continuing to recover from the virus-related shock,” said Daniel Silver, an economist at JPMorgan in New York.
Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 290,000 for the week ended Oct. 16, the lowest level since the middle of March in 2020, when the country was in the early stage of the COVID-19 pandemic.
It was also the second straight week that claims remained below 300,000 as employers hold on to workers in the face of an acute labour shortage. Economists polled by Reuters had forecast 300,000 claims for the latest week.
Unadjusted claims, which economists say offer a better read of the labour market, tumbled 24,293 to 256,304 last week. A jump of 17,570 in filings in California was offset by notable declines in Virginia, Michigan, Pennsylvania, Texas, New York, Kentucky and the District of Columbia.
Claims have declined from a record high of 6.149 million in early April, 2020. A 250,000-300,000 range for claims is seen as consistent with a healthy labour market.
U.S. stock index futures slightly pared losses on the data. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.
The pandemic has upended labour market dynamics, leading to a staggering 10.4 million job openings as of the end of August even as about 7.7 million people were officially unemployed in September. A range of factors has been blamed for the disconnect, including lack of child care, generous federal government-funded unemployment benefits, early retirements and career changes.
Though schools have reopened for in-person learning and the expanded unemployment benefits ended in early September, there was no boost to the labour force last month. About 183,000 people dropped out, leading to a decline in the labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one.
“We remain skeptical that the end of expanded unemployment benefits will lead to a substantial and quick return to the labour force in the near-term,” said Veronica Clark, an economist at Citigroup in New York.
The claims report showed the number of people continuing to receive benefits after an initial week of aid dropped 122,000 to 2.481 million in the week ended Oct. 9. That was also the lowest level since mid-March 2020.
The total number of people collecting unemployment cheques under all programs dropped 369,992 to 3.279 million during the week ended Oct. 2. That largely reflected the end of extended benefits on Sept. 6.
The claims data covered the period during which the government surveyed employers for the non-farm payrolls component of October’s employment report. Filings dropped between the September and October survey weeks, implying a pickup in employment growth this month.
Claims data, however, has not been a reliable indicator of employment growth over the past year because of the upheaval caused by the pandemic.
Labour shortages are occurring across all industries, and are causing congestion at ports and hurting production at factories as well as leaving shelves empty and fanning inflation.
The paucity of workers was echoed on Wednesday by the Federal Reserve’s “Beige Book” report of anecdotal information on business activity collected from contacts countrywide, which showed “employment increased at a modest to moderate rate in recent weeks, as demand for workers was high, but labour growth was dampened by a low supply of workers.”
Non-farm payrolls increased by just 194,000 jobs in September, the fewest in nine months. Employment is 5.0 million jobs below its peak in February, 2020.
“A combination of factors are weighing on supply currently and, if they persist, are likely to slow a complete labour market recovery,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, N.Y.
Shortages of workers and raw materials have led economists to anticipate that gross domestic growth slowed to as low as a 0.5-per-cent annualized rate in the third quarter after accelerating at a 6.7-per-cent pace in the April-June quarter.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.