An employee hiring sign is seen in a window of a business in Arlington, Virginia, U.S., April 7, 2023. REUTERS/Elizabeth Frantz/File photo
WASHINGTON – The number of Americans filing new claims for unemployment benefits increased moderately last week as the labor market continued to show few signs of a significant slowdown.
While the weekly jobless claims report from the Labor Department on Thursday also showed unemployment rolls rising to a six-month high, economists were divided on whether this suggested a material change in the underlying trend. The so-called continuing claims have been rising since mid-September.
Some economists shrugged off the increase, which they blamed on difficulties adjusting the data for seasonal fluctuations. They noted a similar pattern last year over the same period, which was not accompanied by an uptick in the unemployment rate. Others believed this was a sign that laid-off workers were experiencing longer spells of unemployment.
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“The sustained increase in continuing claims since Labor Day appears to be a seasonal adjustment phenomenon, as a similar upswing occurred last year,” said Lou Crandall, chief economist at Wrightson ICAP in New York. “We would not give any weight to the increase at this point. It seems likely to be revised away in next spring’s annual revisions.”
Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 217,000 for the week ended Oct. 28. Economists polled by Reuters had forecast 210,000 claims for the latest week. Though the labor market is gradually cooling, conditions remain tight, highlighting the economy’s enduring strength. The government reported on Wednesday that there were 1.5 job openings for every unemployed person in September.
The U.S. central bank held interest rates steady on Wednesday but left the door open to a further increase in borrowing costs in a nod to the economy’s resilience. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25 percent-5.5 percent range.
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Unadjusted claims rose 2,768 to 196,767 last week. There were notable increases in California, Michigan and North Carolina, which more than offset a sharp decline in New York. The rise in claims in Michigan likely reflected recently ended strikes in the automobile industry.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, advanced 35,000 to 1.818 million during the week ending Oct. 21. That was the highest level for continuing claims since mid-April.
“The rise in continued claims, if sustained, would be a sign of a further loosening in conditions in the labor market,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.
Goldman Sachs economists are among those who believe that seasonal adjustment problems were raising the level of continuing claims. Goldman Sachs said in a note that it expected the seasonal distortions to “exert a cumulative boost of 375,000 to the level of continuing claims by March.”
Regardless, the labor market remains resilient. A separate report on Thursday from global outplacement firm Challenger, Gray & Christmas showed U.S.-based employers announced 36,836 job cuts in October, down 22 percent from September. Planned layoffs were up 9 percent compared to October last year.
Stocks on Wall Street were trading higher on hopes that the Fed was done raising interest rates. The dollar fell against a basket of currencies. U.S. Treasury prices rose, with the yield on the 10-year note falling to a three-week low.
Productivity jump
The claims report has no bearing on October’s employment report, which is scheduled to be released on Friday, as the data fall outside the survey period.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 180,000 last month after rising by 336,000 in September. The anticipated decline in job growth would partly reflect the strikes by the United Auto Workers (UAW) union against Detroit’s “Big Three” car makers.
The government reported last week that there were at least 30,000 UAW members on strike during the period it surveyed business establishments for October’s employment report.
There was encouraging news on the inflation front. A report from the Labor Department’s Bureau of Labor Statistics showed worker productivity grew at its quickest pace in three years in the third quarter, depressing labor costs.
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The trend, if sustained, will help in the Fed’s efforts to bring inflation back to its 2 percent target. The surge also likely reflected investment in technology, including generative AI, economists said.
Nonfarm productivity, which measures hourly output per worker, increased at a 4.7 percent annualized rate last quarter, the fastest since the third quarter of 2020. That followed a 3.6 percent pace of growth in the April-June quarter.
Economists had forecast productivity would increase at a 4.1 percent rate last quarter. The jump in productivity was flagged by a report last week showing the economy growing at its fastest pace in nearly two years in the third quarter. Productivity grew at a 2.2 percent pace from a year ago.
Unit labor costs – the price of labor per single unit of output – fell at a 0.8 percent rate in the third quarter. They grew at a 3.2% pace in the prior quarter and rose at a 1.9 percent rate from a year ago. That was the smallest year-on-year increase since the second quarter of 2021.
“Unit labor costs are a good indicator for the direction of core inflation,” said Jay Hawkins, a senior economist at BMO Capital Markets in Toronto. “Thus, the Fed will take comfort in the third–quarter decline, along with lower core inflation readings over the summer, and likely remain on the sideline.”