The number of Americans filing new claims for unemployment benefits fell to a 52-1/2-year low last week, while the number of people on the unemployment rolls continued to fall, indicating that labor market slack is rapidly reducing, which will continue to drive up wage inflation.
The Labor Department announced on Thursday that the labor market is strengthening, which may prompt the Federal Reserve to hike interest rates by a half percentage point at its next policy meeting in May.
Fed Chair Jerome Powell said on Monday that the central bank must act “immediately” to raise interest rates and, if necessary, “more aggressively” in order to prevent excessive inflation from getting entrenched in the economy.
The Federal Reserve raised its benchmark interest rate by 25 basis points last week, marking the first increase in more than three years.
According to Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania, “U.S. businesses are not laying off workers because they are well aware of the significant difficulties they are having filling unfilled positions.”
“If initial claims continue to fall below 200,000 over an extended length of time, the Federal Reserve will raise an alarm.”
State unemployment benefits applications declined by 28,000 to a seasonally adjusted 187,000 for the week ending March 19, the lowest level since September 1969, according to the Labor Department.
Reuters polled economists who predicted that 212,000 applications would be submitted in the latest week.
The drop in claims last week was widespread, with particularly significant drops in California, Michigan, Kentucky, and Illinois.
Claims have been falling in part as a result of the lifting of COVID-19 restrictions across the country,
which has coincided with a significant decrease in coronavirus cases. They have plummeted from a record high of 6.149 million in early April 2020 to a current low of 1.1 million.
However, there are no indications that Russia’s conflict against Ukraine, which has driven gasoline prices in the United States to record highs and is projected to intensify the strain on global supply chains, has had an impact on the labor market or economic activity.
As reported on Thursday by S&P Global, the flash composite PMI output index, which tracks the manufacturing and services sectors, rose to 58.5 in March from 55.9 the previous month, fueled by strong demand for both goods and services.
The index has now reached an eight-month high of 58.5, up from 54.9 the previous month. The forecast for businesses was positive this year,
with the exception of services firms, which were concerned about the consequences of the growing cost of living caused by the Russian-Ukrainian war.
A steep decline in the stock market on Wednesday was followed by a comeback on Thursday. The dollar (.DXY) gained a fraction of a percent against a basket of currencies. Treasury bond prices in the United States decreased.
SUCCESSIVE BUSINESS INVESTMENTS
According to a third report from the Commerce Department, orders for non-defense capital goods excluding airplanes, which are frequently followed as a proxy for company spending plans, declined 0.3 percent in February, marking the first decline in more than a year.
However, data for January has been revised higher, indicating that these so-called core capital goods orders increased by 1.3 percent in January rather than the previously reported 1.0 percent.
The decline in orders for machinery, primary metals, fabricated metals, as well as computers and other equipment, was the cause of the drop in orders last month.
Shipments of key capital goods increased by 0.5 percent in February. The data for January has also been revised upward, with shipments increasing by 2.1 percent in January rather than the previously projected 1.9 percent increase in January.
When calculating equipment spending in the gross domestic product calculation, core capital goods shipments are taken into account. Given the downward correction in January, economists anticipate a significant increase in company investment in equipment this quarter.
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As Daniel Silver, an economist at JPMorgan in New York, explained, “It is possible that the February dips signify a shift in businesses’ intentions for capital expenditures;
on the other hand, the February results could just reflect noise in the monthly data.” According to our estimates, actual equipment spending will continue to grow strongly in the first quarter, despite the fact that linked price increases will offset some of the nominal gains.
Because of a severe labor shortage, it is anticipated that layoffs will continue to be at a low level for some time. At the end of January, there were 11.3 million job opportunities, representing an all-time high of 1.8 vacant positions per unemployed individual.
This discrepancy between demand for labor and supply is causing wage growth to accelerate, which is giving some relief to consumers from the rising cost of fuel while also contributing to high inflation.
People could return to work in greater numbers this month if COVID-19 infections continue to decline, which would help the economy grow in terms of payrolls.
Following the first week of assistance, the number of persons who received benefits declined by 67,000 to 1.350 million during the week ending March 12, the lowest figure since January 1970, according to the claims report.
The so-called continuing claims data covered the time period in which the government surveyed families to determine the unemployment rate in March, which was March 1.
Between the survey periods in February and March, there was a significant decrease in the number of continued claims. In February, the jobless rate decreased to 3.8 percent, the lowest level in more than two years.
As Conrad DeQuadros, senior economic advisor at Brean Capital in New York put it: “These figures suggest that the March employment situation report will be similar to recent reports, which have shown solid job growth and continued decreases in the unemployment rate.”