U.S. Labor Market, Manufacturing Resilient Despite Rising Interest Rates

A sign advertising job openings is seen outside a Starbucks in Manhattan, New York City, New York, U.S., May 26, 2021. REUTERS/Andrew Kelly

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  • Weekly jobless claims fall by 5,000 to 232,000
  • Continuing claims rise by 26,000 to 1.438 million
  • Layoffs announced by US companies fall 21% in August
  • Factory activity stable in August; employment rebounds

WASHINGTON, Sept 1 (Reuters) – The number of Americans filing new claims for unemployment benefits fell to a two-month low last week as layoffs fell in August, suggesting the Federal Reserve may continue to aggressively raise interest rates to slow the labor market .

The Labor Department’s weekly unemployment claims report on Thursday, the most recent data on the health of the economy, also showed that fewer people had applied for unemployment benefits in the previous week than originally expected.

Strong demand for workers was bolstered by a survey from the Institute for Supply Management (ISM) on Thursday that showed a sharp rebound in manufacturing employment in August after three straight months of contraction.

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The ISM survey found that “companies continued to hire at high rates in August, with little indication of layoffs, hiring freezes or attritional downsizing.”

The Fed has raised rates sharply to keep inflation under control by dampening demand across the economy.

“Employers remain in a mad rush to fill vacancies and are likely to retain staff despite declining demand,” said Matt Colyar, economist at Moody’s Analytics in West Chester, Pennsylvania. “Last year’s experience of a fiercely competitive job market and rapidly changing business cycle has made companies loath to let workers go.”

Initial claims for state unemployment benefits fell by 5,000 to a seasonally adjusted 232,000 for the week ended Aug. 27, the lowest level since late June. Data for the previous week has been revised to show 6,000 fewer applications filed than previously. Economists polled by Reuters had forecast 248,000 applications for the past week.

Unadjusted jobless claims fell by 2,492 to 176,793 last week. There were notable declines in Connecticut, Missouri, Oklahoma and Georgia. These declines offset strong increases in Massachusetts and New York.

The number of people receiving benefits after a first week of help, an indicator of employment, rose by 26,000 to 1.438 million in the week ending August 20.

Aggressive rate hikes by the US central bank have increased the risk of a recession. The Fed has raised its key rate by 225 basis points since March. So far, there are few signs that rising borrowing costs are dampening labor demand.

The government announced this week that there were 11.2 million job vacancies at the end of July, with two jobs for every unemployed person. The resilience of the labor market continues to dispel fears that the economy is in recession after the contraction of gross domestic product in the first half of the year.

Signs that the economy is continuing to expand were bolstered by the ISM survey, whose manufacturing PMI remained unchanged at 52.8 last month. A reading above 50 indicates an expansion in the manufacturing industry, which accounts for 11.9% of the US economy.

ISM PMI

Five of the six largest manufacturing industries, including machinery, transportation equipment, and computer and electronic products, recorded moderate to strong growth.

Manufacturers of computer and electronic products said “customer demand is still strong.” Transportation equipment makers said “strong sales continue.”

While there were signs that supply bottlenecks were easing, helping to slow inflationary pressures at the factory gate, shortages persisted for machinery makers. Read more

“The dreaded recession doesn’t seem imminent,” said Scott Murray, an economist at Nationwide in Columbus, Ohio.

US factories outperform their global counterparts, with manufacturing contracts in Europe and Asia this month. Read more

LOW LAYOFFS

Stocks on Wall Street were trading lower. The dollar appreciated against a basket of currencies. US Treasury prices fell.

The claims data has no bearing on the August jobs report, which is expected to be released on Friday, as it falls outside the survey week. Nonfarm payrolls likely rose by 300,000 jobs last month after jumping 528,000 in July, according to a Reuters survey of economists. As job growth slows, labor market conditions remain tight.

A separate report by global outplacement firm Challenger, Gray & Christmas showed on Thursday that announced job cuts by US-based employers fell 21% to 20,485 in August. Although layoffs are up 30% from a year ago, they are down 27% in the first eight months of this year compared to the same period in 2021.

The tech industry accounted for nearly a quarter of announced job cuts in August. Tech companies have announced 14,408 layoffs so far this year, a 70% increase from the same period last year. Overall, employers announced plans to hire 41,985 workers in August, up 65% from July.

Unemployment insurance claims and gray challenger

Economists still expect job growth to slow, especially with worker productivity continuing to fall at unsustainable rates, putting upward pressure on labor costs .

Weak productivity could also make it more difficult for the Fed to bring inflation back towards its 2% target.

Another Labor Department report showed nonfarm productivity fell at an annualized rate of 4.1% last quarter, revised up from the 4.6% pace of contraction previously reported last month.

It fell at a rate of 7.4% in the first quarter. Productivity fell at a rate of 2.4% from a year ago, down from the 2.5% pace estimated last month. It was still the largest year-on-year decline since the government began tracking the series in the first quarter of 1948. read more

“The degree of the decline in productivity strikes us as implausible,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. “If productivity does not rise, this represents serious cost pressures for businesses. This is not an encouraging picture for a return to 2% inflation in a timely manner.”

Productivity and cost of labor

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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