US weekly jobless claims near 18-month low; labor market remains on track

WASHINGTON: The number of Americans filing new claims for jobless benefits fell to the lowest level in nearly 18 months last week, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed the number of people on state unemployment rolls plunging to levels last seen in mid-March 2020 when the economy was reeling from mandatory shutdowns of nonessential businesses to slow the first wave of COVID-19 cases.

It followed on the heels of a report on Wednesday showing job openings vaulted to a new record high in July, indicating a tight labor market, which some economists argued could put pressure on the Federal Reserve to announce when it would start scaling back its massive monthly bond-buying program.

"There is likely to be a fierce debate at the coming Fed meeting on how tight the labor market is, but if policymakers focus on the most timely data we've got, they will realize that the labor market is close to meeting their more stringent criteria for an interest rate hike let alone the trigger for tapering," said Chris Rupkey, chief economist at FWDBONDS in New York.

US weekly jobless claims drop; layoffs tumble to 24-year low

Initial claims for state unemployment benefits dropped 35,000 to a seasonally adjusted 310,000 for the week ended Sept. 4, the lowest level since mid-March 2020. Economists polled by Reuters had forecast 335,000 applications for the latest week.

The second straight weekly decline in claims came even as filings surged in Louisiana after Hurricane Ida devastated US offshore energy production and knocked off power. There were also notable increases in California, Virginia and Michigan. But those rises were offset by big decreases in claims in Florida, Georgia, New York, Missouri and Tennessee.

Claims have dropped from a record 6.149 million in early April 2020. They are closing in on the upper end of the 200,000-250,000 range viewed as consistent with healthy labor market conditions.

US stocks opened slightly lower. The dollar slipped against a basket of currencies. US Treasury prices rose.

Downward Trend

The continued downward trend in claims suggested the labor market was holding up, despite a resurgence in infections, driven by the Delta variant of the coronavirus. Rising cases contributed to holding back job growth in August, with nonfarm payrolls increasing only 235,000, the smallest gain since January. Payrolls surged 1.053 million in July.

"With Delta cases appearing close to a peak in the United States, we expect hiring to pick back up in September, although the pace of job growth is unlikely to return to the robust pace of early summer," said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.

Job openings surged to a record 10.9 million at the end of July. Labor market tightness was underscored by the Fed's Beige Book report on Wednesday, based on information collected on or before Aug. 30, which showed "all Districts noted extensive labor shortages that were constraining employment and, in many cases, impeding business activity."

About 8.4 million people are officially unemployed. This labor market imbalance has been blamed on lack of affordable childcare, fears of contracting the coronavirus, generous unemployment benefits funded by the federal government as well as pandemic-related retirements and career changes.

There is cautious optimism that the labor crunch will ease starting in September following the expiration of the government-funded unemployment benefits on Monday. The new school year is underway, with most school districts offering in-person learning.

But the Delta variant could cause reluctance among some people to return to the labor force. There is also no guarantee that the expiration of the expanded benefits will force the unemployed to look for work. An early termination of these benefits by about 25 states led by Republican governors over the summer did not expand the labor pool.

"Evidence from states that ended benefits programs early suggests there might not be a sudden substantial return to work as unemployment benefits end," said Veronica Clark, an economist at Citigroup in New York.

The claims report showed the number of people continuing to receive benefits after an initial week of aid tumbled 22,000 to 2.783 million in the week ended Aug. 28, the lowest level since mid-March 2020.

At least 11.930 million people were receiving benefits under all programs during the week ended Aug. 21. This number is expected to drop sharply after Monday's expiration of the expanded benefits, which affected about 7.5 million people.