A help wanted sign in the door of a hardware store in Cambridge, Mass., on July 8, 2022.Brian Snyder/Reuters
The number of Americans filing new applications for jobless benefits slipped last week, but re-employment opportunities for laid-off workers are becoming more scarce, a sign that the unemployment rate probably remained elevated in August.
Though the labour market is slowing, it is doing so in an orderly fashion that is keeping the economic expansion on track. The economy grew faster than initially thought in the second quarter, powered by consumer spending, other data showed on Thursday. Corporate profits also rebounded last quarter, helping to further dispel fears of a recession.
The labour market slowdown and subsiding inflation have positioned the Federal Reserve to start cutting interest rates next month.
“Profits are central to our model of the economy and there is no recession signal here,” said Conrad DeQuadros, senior economic adviser at Brean Capital. “Jobless claims were virtually unchanged and continue to show no evidence of a pickup in layoffs.”
Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 231,000 for the week ended Aug. 24. Economists polled by Reuters had forecast 232,000 claims for the latest week. Claims have retreated from an 11-month high in late July as distortions from temporary motor vehicle plant shutdowns for new model retooling and the impact of Hurricane Beryl faded.
They remain at levels consistent with a steadily easing labour market. The Labour Department’s Bureau of Labour Statistics last week estimated that employment growth was overstated by 68,000 jobs per month in the 12 months through March.
But most economists viewed this so-called benchmark revision estimate as misleading.
The benchmark estimate is based on the Quarterly Census of Employment and Wages data, derived from reports by employers to the state unemployment insurance programs. The data does not include undocumented immigrants, a group that economists believe contributed to strong job growth last year.
“The BLS revisions likely revised the data down too much because the revision is based on administrative data from unemployment insurance files, which probably do not capture many of the increased jobs filled by undocumented workers,” economists at Morgan Stanley wrote in a note.
The labour market slowdown, characterized by a big step-down in hiring, has caught the attention of Fed officials.
Financial markets expect the U.S. central bank to begin its easing cycle next month with a 25-basis-point reduction in its benchmark overnight interest rate, though a half-percentage point cut is on the table.
The Fed has maintained its policy rate in the current 5.25 per cent-5.50 per cent range for more than a year, having raised it by 525 basis points in 2022 and 2023.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 13,000 to a seasonally adjusted 1.868 million during the week ending Aug. 17, the claims report showed.
The so-called continued claims are near levels last seen in late 2021, indicating longer spells of unemployment.
Continuing claims data covered the period during which the government surveyed households to determine the unemployment rate for August. Continuing claims rose slightly between the July and August survey periods.
Economists are expecting the jobless rate this month to either have remained near a three-year high of 4.3 per cent or fallen to 4.2 per cent. The unemployment rate has risen for four straight months, partly reflecting an immigration-induced surge in labour supply.
Gross domestic product increased at a 3.0 per cent annualized rate last quarter, revised up from the 2.8 per cent rate reported last month, the Commerce Department’s Bureau of Economic Analysis said in its second estimate of second-quarter GDP on Thursday. The economy grew at a 1.4 per cent pace in the first quarter.
Consumer spending, which accounts for more than two-thirds of the economy, increased at an upwardly revised 2.9 per cent rate. It was previously reported to have grown at a 2.3 per cent pace. That offset downgrades in business investment, exports and private inventory investment.
Personal income increased by $233.6-billion, a downward revision of $4.0-billion from the previous estimate. Corporate profits including inventory valuation and capital consumption adjustments increased $57.6-billion after declining by $47.1-billion in the first quarter.
When measured from the income side, the economy grew at a 1.3 per cent rate last quarter. Gross domestic income (GDI) increased at a 1.3 per cent pace in the January-March quarter. In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.1 per cent rate last quarter after advancing at a 1.4 per cent pace in the first quarter.
Though a third report from the Commerce Department’s Census Bureau showed the goods trade deficit widening 6.3 per cent to $102.7-billion in July amid a 2.3 per cent surge in imports, the impact on GDP is likely to blunted by rising inventories.
Importers are likely front-loading imports, which are ending up as inventories, in anticipation of higher tariffs should former U.S. president Donald Trump be returned to the White House in November’s election. Wholesale inventories increased 0.3 per cent, while stocks at retailers jumped 0.8 per cent.