The number of Americans filing new claims for unemployment benefits held steady at a low level last week, pointing to a still fairly tight labour market that should continue to underpin the economy in the second quarter.
Economists largely shrugged off other data from the Labor Department on Thursday showing growth in worker productivity almost stalled in the first quarter, noting that the trend in productivity remained solid. They also argued that there was a seasonal quirk, which tended to bias gross domestic product and productivity lower in the first quarter.
At face value, the sharp slowdown in productivity and accompanying surge in labour costs would raise concerns about inflation pressures building up as well as profit margins being squeezed, which would impact demand for labour.
“We believe such fears are misplaced,” said Conrad DeQuadros, senior economic adviser at Brean Capital. “We have identified residual seasonal adjustment bias in the quarterly GDP growth measures that depress first-quarter growth, and since productivity is measured by the sector’s GDP divided by hours worked, this bias also depresses productivity.”
Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 208,000 for the week ended April 27. Economists polled by Reuters had forecast 212,000 claims in the latest week. Claims have been bouncing around in a 194,000-225,000 range this year.
Unadjusted claims decreased 13,884 to 188,740 last week. Claims in California fell 4,563. There were also big declines in Connecticut, Massachusetts, Oregon, Texas and Rhode Island, more than offsetting notable increases in Illinois and Iowa.
Though demand for labour is softening, with job openings falling to a three-year low in March, layoffs remain very low as companies hang on to their workers following challenges finding labour during and after the COVID-19 pandemic.
The Federal Reserve on Wednesday kept the U.S. central bank’s benchmark overnight interest rate unchanged in the current 5.25 per cent-5.50 per cent range, where it has been since July.
Fed Chair Jerome Powell told reporters on Wednesday that progress lowering inflation had stalled. Powell described the labour market as having remained “relatively tight,” but also noted that “supply and demand conditions have come into better balance.” He pushed back against chatter of stagflation and the central bank needing to raise rates again.
Since March 2022, the Fed has hiked its policy rate by 525 basis points. Labor costs and inflation jumped in the first quarter.
U.S. stocks were higher. The dollar was steady against a basket of currencies. U.S. Treasury yields fell.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, was also unchanged at a seasonally adjusted 1.774 million during the week ending April 20, the claims report showed.
Low layoffs were reinforced by a separate report from global outplacement firm Challenger, Gray & Christmas showing U.S.-based employers announced 64,789 job cuts in April, a 28 per cent drop from March. So far this year, companies have announced 322,043 job cuts, down 4.6 per cent from the same period last year.
The claims data have no bearing on April’s employment report, which is scheduled to be published on Friday. Nonfarm payrolls likely increased by 243,000 jobs in April after a gain of 303,000 in March, according to a Reuters survey of economists. The unemployment rate is forecast unchanged at 3.8 per cent.
A third report from the Labor Department’s Bureau of Labor Statistic showed nonfarm productivity, which measures hourly output per worker, increased at a 0.3 per cent annualized rate in the first quarter after rising at a 3.5 per cent pace in the October-December period. The government on Friday corrected productivity data from 2019 through 2023 due to a computation error.
Economists had forecast productivity would increase at a 0.8 per cent rate. Productivity advanced at a 2.9 per cent pace from a year ago. Economists are keeping an eye on productivity to gauge how quickly labour costs can rise without reigniting inflation.
Unit labour costs – the price of labour per single unit of output – jumped to a 4.7 per cent rate in the January-March quarter after being unchanged in the prior quarter. Labor costs increased at a 1.8 per cent pace from a year ago.
Compensation shot up at a 5.0 per cent rate last quarter after rising at a 3.5 per cent pace in the October-December quarter. It increased at a 4.7 per cent rate from a year ago.
“The underlying trend in productivity growth still looks very healthy,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “The 1.8 per cent year-over-year growth in unit labour costs is easily consistent with the (2 per cent) inflation target and supports the Fed’s view that the labour market has moved into better balance.”
A fourth report from the Commerce Department on Thursday showed the trade deficit narrowing 0.1 per cent to $69.4-billion in March as a decline in imports was tempered somewhat by a plunge in exports. Trade, through a surge in imports, was a large drag on gross domestic product in the first quarter.
March’s trade deficit had no impact the January-March quarter’s 1.6 per cent annualized growth pace published last week.
The Commerce Department also reported that factory orders increased 1.6 per cent in March. But orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, were revised to show them edging up 0.1 per cent instead of rising 0.2 per cent as previously reported.
Shipments of these so-called core capital goods were unchanged instead of gaining 0.2 per cent as reported last week.
The revisions were unlikely to have an impact on business spending on equipment when the government publishes its second estimate of GDP next month.
“The news was marginally negative,” said Daniel Silver, an economist at JPMorgan. “But the surprises were pretty small on net in terms of headline GDP growth.”