The number of Americans filing for unemployment benefits unexpectedly fell last week as employers continued to hold on to their workers, but the coronavirus pandemic is expected to lead to an increase in layoffs as companies battle supply chain disruptions and sagging demand for some goods and services.
Some businesses are already cutting jobs and demand is weakening, at least at the factory level. Other reports on Thursday showed companies announced more than 600 layoffs through March 12 tied to the outbreak, while producer prices fell by the most in five years in February as prices for energy products and services such as hotel accommodation, shipping and air travel dropped.
Financial markets are expecting the Federal Reserve will aggressively cut interest rates again at its policy meeting next week to counter the coronavirus, which investors fear is the catalyst that will derail the longest economic expansion on record, now in its 11th year.
"It's just a matter of time before the fallout from the coronavirus starts to show up in increased layoff activity," said Nancy Vanden Houten, lead US economist at Oxford Economics in New York.
Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 211,000 for the week ended March 7, the Labor Department said. Jobless claims are the most timely labour market indicator. They have declined for two straight weeks.
Economists polled by Reuters had forecast claims rising to 218,000 in the latest week.
The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose 1,250 to 214,000 last week.
Unadjusted claims for Washington state, hardest hit by the virus, which causes a respiratory disease called COVID-19, rose modestly last week.
The Fed last week slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%, in its first emergency rate cut since the financial crisis. Financial markets have fully priced in a rate reduction of as much as 75 basis points at the US central bank's March 17-18 policy meeting.
Economists are predicting the Fed will reduce its benchmark overnight interest rate to zero by year-end, given low inflation expectations, underscored by a plunge in Treasury yields.
Companies in the energy sector have also been affected as crude prices have tumbled, a decline that has been exacerbated by an oil price war between Saudi Arabia and Russia. The United States is now a net exporter of oil and weak crude prices are likely to hurt capital expenditure and employment in the sector.
A separate report on Thursday from global placement firm Challenger, Gray and Christmas showed as of the morning of March 12, employers had laid off 633 workers. Most of the job cuts were in the entertainment and leisure industry. Transportation, technology and energy sectors were not spared.
The trend could persist, with a third report from the Labor Department showing the producer price index for final demand dropped 0.6% last month, the biggest decline since January 2015, after surging 0.5% in January. In the 12 months through February, the PPI increased 1.3% after gaining 2.1% in January.
Economists had forecast the PPI dipping 0.1% in February and rising 1.8% on a year-on-year basis. While the coronavirus-driven bottlenecks in the supply chain could boost prices for inputs, that is likely to be offset by weak oil prices and falling demand for services.
In February, wholesale gasoline prices plummeted 6.5% after declining 1.5% in January. Gasoline accounted for nearly one-third of the 0.9% drop in the cost of goods last month. The decline in goods was the most since September 2015 and followed a 0.1% gain in January. Wholesale food prices fell 1.6%.
The cost of services dropped 0.3% in February after rebounding 0.7% in January.
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