- Weekly jobless claims fall 26k to 239k
- Current claims decrease by 19,000 to 1.742 million
- First quarter GDP growth revised to 2.0% from 1.3%
WASHINGTON, June 29 (Reuters) – The number of Americans filing new jobless claims fell last week, the sharpest in 20 months. This is the latest sign of economic resilience, which could prompt the Federal Reserve to hike interest rates again in July.
The unexpected drop in job applications, which the Labor Department reported on Thursday, reversed a recent surge that had caused initial jobless claims to remain stuck for the past three weeks at levels last seen in October 2021, as the economy is beginning to feel the heat of the Fed’s sharp rate hikes.
Continued strength in the labor market is helping the economy defy recession forecasts by boosting wages. Other data on Thursday showed the economy grew faster than previously estimated in the first quarter, thanks to resilient consumer spending. It appears that momentum was maintained in the second quarter. This month’s reports showed better-than-expected job growth in May, along with rising retail sales and a pick-up in housing starts.
“The economy is showing real signs of resilience right now,” said Gregory Daco, chief economist at EY-Parthenon in New York. “That has many rightly wondering whether the long-predicted recession is truly inevitable, or whether a soft-landing of the economy is possible.”
Initial jobless claims fell by 26,000 to a seasonally adjusted 239,000 in the week ended June 24. The drop was the largest since October 2021.
Economists polled by Reuters had forecast 265,000 claims for the past week.
Recent policy changes in Minnesota, allowing tens of thousands of hourly-paid school workers to qualify for state unemployment benefits during the summer vacation, were partly responsible for the surge in claims during the first three weeks of June. Another factor was the alleged fraud in Ohio.
Unadjusted claims fell by 17,843 to 233,048 last week. Claims fell by 10,108 in California and 9,187 in Texas. In Pennsylvania, they were down 3,263, while Minnesota reported a 2,387 drop. Those declines offset a 6,013 rise in Connecticut and a 5,206 rise in New Jersey.
Claims reports could become volatile in July, when automakers typically shut down plants to upgrade to new models. However, these temporary plant closures don’t always occur at around the same time, which could confuse the model the government uses to remove seasonal variations from the data.
Relative to the size of the labor market, the number of applications is well below the 280,000 mark, which some economists say would indicate a significant slowdown in job growth. Job growth averaged 314,000 jobs per month this year.
“Right now there is no sign of a significant slowdown in labor demand,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York.
According to CME Group’s FedWatch tool, financial markets have almost fully priced in a 25 basis point rate hike at the Fed’s July 25-26 policy meeting.
Fed Chair Jerome Powell told an event at Spain’s central bank in Madrid on Thursday that “we expect the moderate pace of interest rate decisions to continue” after they paused in June.
US Treasury yields rose. The dollar appreciated against a basket of currencies. Wall Street stocks traded higher.
Applications for unemployment benefits: People queue outside a newly opened career center for in-person appointments in Louisville, U.S. April 15, 2021. REUTERS/Amira Karaoud/File Photo
First quarter GDP revised upwards
The number of people receiving benefits after an initial week of relief, an indicator of recruitment, fell by 19,000 to 1.742 million in the week ended June 17, the lowest since February, the claims report shows. The historically low so-called permanent entitlements indicate that some redundant workers experienced shorter spells of unemployment.
A Conference Board poll this week showed that consumers perceived the job market positively in June, rating more jobs as “abundant” compared to May.
The pending claims covered the period when the government was surveying households about the unemployment rate in June. Current entitlements decreased between the May and June survey periods. The unemployment rate was 3.7% in May.
Higher wages amid tight labor markets boosted consumer spending in the first quarter, offsetting the drag from a sharp slowdown in the pace of corporate inventory investment.
Gross domestic product rose 2.0% on an annualized basis in the most recent quarter, the Commerce Department said in its third estimate of GDP for the first quarter on Thursday.
The upward revision from the 1.3% pace reported last month reflected improvements in consumer spending and exports. The economy grew 2.6% in the fourth quarter.
GDP Consumption Contribution
Economists had expected GDP growth to edge up slightly to 1.4% in the first quarter.
Fifteen industries, including health and social care, retail, agriculture, real estate and leasing, and lodging and hospitality services, contributed to GDP growth in the most recent quarter.
But seven industries, including finance and insurance, manufacturing and wholesale trade, were a drag.
contributors to GDP
While corporate earnings fell for the third straight quarter, the decline in the first quarter wasn’t as sharp as initially thought. After-tax earnings excluding inventory valuation and capital consumption adjustments, which correspond to S&P 500 earnings, fell 1.2%, instead of the previously estimated 2.1% rate.
As a result, economic output shrank by 1.8% on the income side. It was originally estimated that gross domestic income (BDI) fell by 2.3% in the first quarter. GDP and BDI should be the same, but differ as they are estimated based on different and largely independent source data.
The average of GDP and BDI, also known as gross domestic production and seen as a better measure of economic activity, edged up 0.1% in the most recent quarter, instead of falling 0.5% as previously reported. Economists expected BDI would be revised towards GDP when the government revised the data later this year.
“While the economy will struggle with the Fed’s actions, slow growth will lower inflation without triggering a recession,” said Scott Hoyt, chief economist at Moody’s Analytics in West Chester, Pennsylvania.
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
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