New applications for US unemployment benefits drifted close to 57-year lows last week and layoffs decreased in September, suggesting labor market stability persisted even as employers remained cautious about boosting hiring.
The report from the Labour Department on Thursday joined a raft of other data, including robust consumer spending in August, in painting a rosy picture of the economy despite rising headwinds from the US-Israeli war with Iran, which has driven diesel prices to record highs. Economists said robust corporate profits growth and resilient domestic demand were shielding workers from layoffs, for now.
“At some point, elevated energy costs and material prices will force firms to lay off marginal workers to protect profit margins, but there is no sign of that here,” said Carl Weinberg, chief economist at High Frequency Economics.
Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 197,000 for the week ended September 26, the Labor Department said on Thursday. Economists polled by Reuters had forecast 200,000 claims for the latest week.
Claims have held below the 200,000 level for three straight
weeks and are near levels last seen in 1969. Some economists
said historically low layoffs, if sustained, could raise
questions about the labor market overheating, with monetary
policy implications.
“We do not appear to be close to that result yet, but this
is a new risk that the FOMC appears to be watching,” said
Stephen Stanley, chief US economist at Santander US Capital
Markets, referring to the Fed’s policy-setting committee.
A separate report from global outplacement firm Challenger,
Gray Christmas showed layoffs announced by US-based employers
dropped 18% to 43,281 in September. They were down 20% from a
year ago and fell 43% in the third quarter. Employers are,
however, in no rush to increase headcount.
Hiring plans increased by 90,787 last month. While that was
sharply up from 12,325 in August, hiring intentions were down
23% from a year ago, and the tally was the lowest for any
September since 2011. Challenger, Gray Christmas said a surge
in seasonal hiring typically seen starting in September was
absent, adding that “companies are in a wait-and-see period.”
The Federal Reserve last month raised its overnight
benchmark interest rate by 25 basis points to the 3.75%-4.00%
range, the first hike in three years, and flagged further
increases in borrowing costs in the months ahead. The odds of
another rate hike this month were diminished by
cooler-than-expected inflation readings in August and July.
Financial markets priced in a roughly 37.1% chance of
further monetary policy tightening at the October 27-28 meeting,
down from about 68.6% a week ago, CME’s FedWatch tool showed.
But August’s market-friendly inflation readings are
unlikely to be sustained. An Institute for Supply Management
survey on Thursday showed inflation pressures building up at the
factory gate in September, with no commodities reported to have
seen price declines. The survey’s measure of input prices jumped
to 77.9 last month from 71.1 in August.
SUPPLY CHAIN CONSTRAINTS
Strong demand is running into capacity constraints, with
supply chains stretched because of the war and tariffs.
“The longer energy-driven price pressures persist, the
greater the risk that they feed through into broader consumer
price pressures,” said Thomas Ryan, senior North America
economist at Capital Economics.
Comments from respondents to the survey were mostly negative
and focused on pricing volatility, import tariffs, the Middle
East conflict and increasing lead times.
Some transportation equipment manufacturers complained that
“every month, we are faced with new headwinds created by this
administration,” alluding to the trade war with Canada, adding
“the only thing that is predictable is the chaos that is created
by these trade policies.”
Others in the electrical equipment, appliances and
components industry said “new tariffs against Canada have
drastically increased costs for capital expenses as well as
assemblies.” Similar complaints were voiced by some makers of
computer and electronic products who reported that the “US
tariff schedule is providing challenges.”
Food, beverage and tobacco products manufacturers
complained about higher fuel prices driving up “transportation
costs and the overall cost of goods.” While some makers of
fabricated metal products reported strong orders, they said
labor and steel shortages were “limiting our production output
to meet demand.”
Stocks on Wall Street were trading lower. The dollar
advanced versus a basket of currencies. US Treasury prices fell,
with the yield on the benchmark 10-year note hitting the highest
level in 24 years.
The claims report showed the number of people receiving
unemployment benefits after an initial week of aid, a proxy for
hiring, dropped 11,000 to a seasonally adjusted 1.701 million
during the week ended September 19. That was the lowest level in
the so-called continuing claims since April 2023.
Still, some people who have lost their jobs are experiencing
long spells of unemployment. A survey from the Conference Board
on Tuesday showed the share of consumers saying jobs were
“plentiful” dropped in September to the lowest level since
February 2021, while the proportion who viewed jobs as “hard to
get” was the highest in more than 5-1/2 years.
The claims data have no bearing on September’s employment
report as they fall outside the survey period. Nonfarm payrolls
likely increased by 90,000 jobs last month after advancing
162,000 in August, a Reuters survey of economists showed. The
unemployment rate is forecast holding steady at 4.1% for a third
straight month, in part held down by a smaller labor force
because of retirements and an immigration crackdown.
“We continue to think the pace of layoffs will rise next
year, in response to the recent tightening of financial
conditions and growing adoption of AI by firms,” said Samuel
Tombs, chief US economist at Pantheon Macroeconomics.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and
Andrea Ricci)
Source: Khaleej Times