- Weekly jobless claims rise 4,000 to 229,000
- Damage data for the last two weeks has been revised down significantly
- First quarter GDP growth lifted to 1.3%
- Corporate profits fall in the first quarter
WASHINGTON, May 25 (Reuters) – The number of Americans filing new jobless claims rose modestly last week, and data for the previous two weeks has been revised down significantly as fraudulent claims from Massachusetts were removed, which indicates continued strength in the labor market.
Thursday’s Labor Department report, which also showed fewer people collecting unemployment benefits in mid-May, suggested the economy enjoyed another month of strong job gains and a lower unemployment rate.
The government is expected to release its closely watched May jobs report next Friday. Some economists said the resilience of the job market raised the risk that the Federal Reserve could hike rates again in June. Minutes of the Fed’s May 2-3 monetary policy meeting, released on Wednesday, showed US central bank officials “broadly agreed” that the need for further rate hikes had “become more uncertain”.
“The worrying trend of more layoffs has just been fully corrected as the labor market is not easing as much as Fed officials and markets had thought,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed is looking further behind the curve on anti-inflation than ever before as tensions in the labor market persist.”
Initial jobless claims rose 4,000 to a seasonally adjusted 229,000 in the week ended May 20. Data for the previous week has been revised to show 17,000 fewer applications than previously reported.
Claims for the week ending May 6 were revised down by 33,000, bringing the number of claims significantly lower during the period the government surveyed companies for the non-farm payrolls portion.
The economy created 253,000 jobs in April. Economists polled by Reuters had forecast 245,000 claims for the past week.
The Massachusetts Department of Unemployment Assistance said this month that it was seeing “an increase in fraudulent claim activity.”
Massachusetts unadjusted claims fell 2,190 last week.
The job market has slowed only marginally, despite the Fed’s 500 basis point rate hikes since March 2022, when it launched its fastest monetary tightening campaign since the 1980s to curb inflation.
For every unemployed person, there were 1.6 job vacancies in March, which is well above the 1.0-1.2 range consistent with a labor market that is not generating too much inflation.
Employers are hoarding workers after struggling to find workers amid the COVID-19 pandemic.
Economists expected layoffs would increase as the impact of punitive rate hikes spread across the economy and financial conditions tightened, making it harder for small businesses to access credit.
This opinion is shared by policymakers. Minutes from the Fed meeting revealed that while participants noted that the labor market remained very tight, they “expected that job growth was likely to decelerate further, reflecting a slowdown in aggregate demand, partly due to due to tighter credit conditions.”
The number of people receiving benefits after an initial week of relief, an indicator of recruitment, fell by 5,000 to 1.794 million in the week ended May 13, the claims report shows. The so-called rolling claims covered the period when the government was surveying households about the unemployment rate in May.
Continuing claims declined between the April and May survey weeks. The unemployment rate fell to a 53-year low of 3.4% in April. The low claims are consistent with recent data on retail sales, factory production and business activity, which suggested the economy regained momentum at the start of the second quarter.
US stocks traded higher. The dollar rose against a basket of currencies. US Treasury bond prices fell.
unemployment claims
On shaky ground
Still, the economy is on shaky ground on a backdrop of declining profits, which could hamper hiring and investment going forward. A standstill in raising the sovereign debt ceiling also poses a risk to the economy.
Gross domestic product rose 1.3% on an annualized basis in the first quarter, the Commerce Department said in its second GDP estimate on Thursday, which was revised up from the 1.1% pace reported last month. The economy grew 2.6% in the fourth quarter. There were improvements in inventory investment, government and local government spending, business investment and exports. Investments in housing construction have been revised downwards.
GDP
After-tax earnings excluding inventory valuation and capital consumption adjustments, which are in line with S&P 500 earnings, fell 2.1%, the third straight quarterly decline.
They fell 6.0% year over year, the sharpest decline since the second quarter of 2020, a sign that companies were struggling to pass higher costs on to customers.
With falling profits, economic output shrank by 2.3% in terms of income in the first quarter.
Gross domestic income (BDI) fell 3.3% in the fourth quarter, below the previously reported 1.1% decline. This reflected downward revisions to wage growth in the fourth quarter.
In principle, GDP and GDI should be the same, but in practice they differ, as they are estimated based on different and largely independent source data.
The gap between GDI and GDP, also known as the statistical discrepancy, widened sharply in 2021 and caught the attention of policymakers. The statistical discrepancy in 2021 subsequently narrowed when the government carried out its annual revision of the data in 2022, with GDP revised upwards and BDI downwards.
“This weakness in GDP suggests that real GDP growth could be revised down in recent quarters,” said Jay Bryson, chief economist at Wells Fargo in Charlotte, North Carolina. “Although one side of the economic balance sheet may be shrinking, the US economy is unlikely to be in recession right now.”
The average of GDP and BDI, also known as gross domestic production and seen as a better measure of economic activity, fell 0.5% in the most recent quarter after falling 0.4% in the fourth quarter.
“The real state of the economy is probably somewhere in between, since neither measure is perfect,” said Ryan Sweet, chief economist at Oxford Economics in West Chester, Pennsylvania.
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
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