First time applications for US jobless benefits fell quite sharply last week, with the number of Americans on unemployment falling to a 17-year low, a marker which indicates a tighter labor market that might result in a federal interest rate increase from the Federal Reserve bank, next month.
Shrinking job market slack has, in fact, left many companies scrambling to fill some positions as they look to improve productivity. This, of course, leads to an increase in labor costs since other data shows worker productivity fell in the first quarter.
According to Naroff Economic Advisors chief economist Joel Naroff, “The tightening labor market is raising costs but firms are failing to improve productivity to offset those increases. There simply is no reserve army of the unemployed or underemployed to call on and hours worked are already fairly high.”
Looking closely at the numbers, initial state unemployment claims fell by 19,000 to hit a seasonally-adjusted 238,000 for the week (ending April 29). According to the US Department of Labor, this decline loosened much of the increases from the past two weeks, increases which economists had blamed on volatility that came from poor Spring event timing (Easter, school breaks, etc). Furthermore, the number of people who are still receiving unemployment benefits after their first week of aid fell by 23,000, to 1.96 million during the week ending April 22. This is the lowest level for this metric since April 2000.
As such, the Federal Reserve kept its benchmark rate unchanged overnight on Wednesday, leading into Thursday with the expectation that labor market conditions would “strengthen somewhat further.”
An analyst with TD Securities has commented, too, “We see limited upside this month, as we believe a slower pace of job growth is gradually emerging, consistent with nearing full employment.”
But most economists are expecting to see this rate hike at some point in June. After all, jobless claims have held under the healthy labor market threshold of 300,000 for 113 straight weeks. This is the longest such stretch since 1970.
RDQ Economics chief economist John Ryding adds, “The (Trump) administration is looking for 3 percent trend real GDP growth and, given the demographic effects of an aging population on the workforce, such an outcome would require productivity growth to be significantly above its long-run trend for a decade.”