Persistently high U.S. weekly jobless claims point to labor market scarring

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for jobless benefits rose to a two-month high last week, stoking fears the COVID-19 pandemic was inflicting lasting damage to the labor market.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed at least 25 million were on jobless benefits at the end of September. It reinforced views the economy’s recovery from the recession, which started in February, was slowing and in urgent need of another government rescue package.

The economic hardship wrought by the coronavirus crisis is a major hurdle to President Donald Trump’s chances of getting a second term in the White House when Americans go to the polls on Nov. 3. Former Vice President Joe Biden, the Democratic Party’s candidate, has blamed the Trump administration’s handling of the pandemic for the worst economic turmoil in at least 73 years.

“The increase in initial claims is disturbing,” said Chris Low, chief economist at FHN in New York. “It is difficult to see it and not think the recovery is vulnerable.”

Initial claims for state unemployment benefits increased 53,000 to a seasonally adjusted 898,000 for the week ended Oct. 10. Data for the prior week was revised to show 5,000 more applications received than previously reported.

Economists polled by Reuters had forecast 825,000 applications in the latest week. The surprise increase came even as California processed no claims. California, the most populous state in the nation, suspended the processing of new applications for two weeks in late September to combat fraud. It resumed accepting claims last Monday.

Unadjusted claims rose 76,670 to 885,885 last week. Economists prefer the unadjusted number given earlier difficulties adjusting the claims data for seasonal fluctuations because of the economic shock caused by the pandemic. Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.3 million people filed claims last week.

Seven months into the pandemic in the United States, first-time claims remain well above their 665,000 peak during the 2007-09 Great Recession, though below a record 6.867 million in March. With new COVID-19 cases surging across the country and the White House and Congress struggling to agree on another rescue package for businesses and the unemployed, claims are likely to remain elevated.

Treasury Secretary Steven Mnuchin said on Thursday he would keep trying to reach a deal with House Speaker Nancy Pelosi, a Democrat, before next month’s election.

Stocks on Wall Street were lower. The dollar gained versus a basket of currencies. U.S. Treasury prices rose.

MILLIONS EXHAUST BENEFITS

About 3.8 million people had permanently lost their jobs in September, with another 2.4 million unemployed for more than six months. Economists fear those numbers could swell.

Though the claims report showed a decline in the number of people on unemployment rolls in early October, economists said that was because many people had exhausted their eligibility for benefits, which are limited to six months in most states.

The number of people receiving benefits after an initial week of aid declined 1.165 million to 10.018 million in the week ending Oct. 3.

About 2.8 million workers filed for extended unemployment benefits in the week ending Sept. 26, up 818,054 from the prior week. That was the largest weekly gain since the program’s launch last spring. These benefits are set to expire on Dec. 31.

Tens of thousands of airline workers have been furloughed. State and local government budgets have been crushed by the pandemic, leading to layoffs that are expected to escalate without help from the federal government.

“Risks to the labor market outlook are weighted heavily to the downside,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The increased spread of the virus across much of the country could result in an even larger pullback in business activity than expected.”

Though economic activity rebounded in the third quarter because of fiscal stimulus, the stubbornly high jobless claims suggest momentum ebbed heading into the fourth quarter.

Other reports on Thursday showed mixed fortunes for regional manufacturing in October. A survey from the New York Federal Reserve showed its business conditions index fell seven points to a reading of 10.5 this month. Companies reported continued gains in new orders and shipments, though unfilled orders maintained their decline. Factory employment rose modestly, but the average workweek increased significantly.

Separately, the Philadelphia Fed said its business conditions index jumped to a reading of 32.3 from 15.0 in September. Measures of new orders and shipments at factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware rose. A gauge of factory employment fell, but manufacturers increased hours for workers.

Third-quarter GDP growth estimates are topping a 32% annualized rate. The economy contracted at a 31.4% pace in the second quarter, the deepest decline since the government started keeping records in 1947. Growth estimates for the fourth quarter have been cut to as low as a 2.5% rate from above a 10% pace.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

U.S. weekly jobless claims below one million; but labor market recovery ebbing

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell below 1 million last week for the second time since the COVID-19 pandemic started in the United States, but that does not signal a strong recovery in the labor market.

The drop in initial claims to a five-month low reported by the Labor Department on Thursday largely reflected a change in the methodology it used to address seasonal fluctuations in the data, which economists complained had become less reliable because of the economic shock caused by the coronavirus crisis.

There are growing signs the labor market recovery from the depths of the pandemic in mid-March through April is faltering, with financial support from the government virtually depleted.

“There are new seasonal adjustment factors this week which brings down the joblessness slightly,” said Chris Rupkey, chief economist at MUFG in New York. “The labor market looks just as bad as it was and it will be a miracle if economic growth can continue at such a fast clip during this recovery if it has to drag along millions and millions of workers without paychecks.”

Initial claims for state unemployment benefits fell 130,000 to a seasonally adjusted 881,000 for the week ended Aug. 29. Economists polled by Reuters had forecast 950,000 applications in the latest week. A staggering 29.2 million people were on unemployment benefits in mid-August.

The Labor Department has switched to using additive factors to more accurately track seasonal fluctuations in the series. The government dropped the multiplicative seasonal adjustment factors it had been using because they could cause systematic over-or under-adjustment of the data in the presence of a large shift in the claims series.

Unadjusted claims rose 7,591 to 833,352 last week. The increase in the raw numbers, which many economists prefer to focus on, added to a raft of data suggesting the labor market recovery was ebbing.

A report on Wednesday from the Federal Reserve based on information collected from the U.S. central bank’s contacts on or before Aug. 24 showed an increase in employment. The Fed, however, noted that “some districts also reported slowing job growth and increased hiring volatility, particularly in service industries, with rising instances of furloughed workers being laid off permanently as demand remained soft.”

Private employers hired fewer workers than expected in August. In addition, data from Kronos, a workforce management software company, and Homebase, a payroll scheduling and tracking company, showed employment growth stagnated last month.

Another report on Thursday showed job cuts elevated in August amid layoffs by airlines. United Airlines said on Wednesday it was preparing to furlough 16,370 workers on Oct. 1.

Stocks on Wall Street were trading sharply lower. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.

SEVERE DISTRESS

The weak labor market reports raise the risk of a sharper slowdown in job growth in August than is currently anticipated by financial markets. The government is scheduled to publish August’s employment report on Friday.

According to a Reuters survey of economists non-farm payrolls likely rose by 1.4 million jobs last month after increasing by 1.763 million in July. That would leave non-farm payrolls about 11.5 million below their pre-pandemic level.

The claims report also showed the number of people receiving benefits after an initial week of aid dropped 1.238 million to 13.254 million in the week ending Aug. 22. Part of the decrease in so-called continuing claims was likely because of people exhausting eligibility for benefits.

The number of people receiving unemployment benefits under all programs jumped 2.2 million to 29.2 million in the week ended Aug. 15.

“While Wall Street hits record highs, much of Main Street remains in severe distress,” said Ron Temple, head of U.S. Equity at Lazard Asset Management in New York. “The pandemic and the federal failure to sustain necessary assistance to households as well as state and local governments are weakening long-term economic growth and social stability.”

Fiscal stimulus boosted economic activity after it nearly ground to a halt following the shuttering of nonessential businesses in mid-March to control the spread of COVID-19. That set up the economy, which plunged into recession in February, for a sharp rebound in the third quarter.

A $600 weekly unemployment supplement expired in July and funding programs for businesses have also lapsed, leaving the outlook for growth uncertain. Also clouding the growth prospects, the trade deficit jumped 18.9% to a 12-year high of $63.6 billion in July, driven by a record surge in imports.

While the rise in imports could be blunted by an increase in inventories, export growth was moderate in July. That could threaten a recent acceleration in manufacturing activity.

A fourth report on Thursday showed growth in the services industry slowed in August. The services sector, which accounts for more than two-thirds of the U.S. economy, has been hardest hit by the pandemic.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)

U.S. labor market recovery stalling; second wave of layoffs underway

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing for unemployment benefits fell last week, but the pace of decline appears to have stalled amid a second wave of layoffs as companies battle weak demand and fractured supply chains, supporting views that the economy faces a long and difficult recovery from the COVID-19 recession.

The Labor Department’s weekly jobless claims report on Thursday, the most timely data on the economy’s health, sketched a picture of a distressed labor market even though employers hired a record 2.5 million workers in May as businesses reopened after shuttering in mid-March to slow the spread of COVID-19. At least 29 million people are collecting unemployment checks.

Stubbornly high joblessness could stifle the nascent signs of economic recovery that had been flagged by a record jump in retail sales in May and a sharp rebound in permits for future home construction. Federal Reserve Chair Jerome Powell told lawmakers this week that “significant uncertainty remains about the timing and strength of the recovery.”

The economy fell into recession in February.

“The recent sightings of green shoots for economic growth are going to fade in a hurry if workers can’t return to the jobs they lost during the pandemic recession,” said Chris Rupkey, chief economist at MUFG in New York. “Over 20 million out of work without a paycheck is a lot of spending missing from the economy.”

Initial claims for state unemployment benefits fell 58,000 to a seasonally adjusted 1.508 million for the week ended June 13, the government said. Data for the prior week was revised to show 24,000 more applications received than previously reported, bringing the tally for that period to 1.566 million.

Economists polled by Reuters had forecast claims dropping to 1.3 million in the latest week. The 11th straight weekly decrease pushed claims further away from a record 6.867 million in late March. Still, claims are more than double their peak during the 2007-09 Great Recession.

“The fear of a second wave of layoffs, as industries not directly affected by COVID-caused shutdowns have started to shed workers, appears to have begun,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.

A separate report from the Philadelphia Fed on Thursday showed labor market conditions remained depressed in June at factories in the mid-Atlantic region even as manufacturing activity in the region that covers eastern Pennsylvania, southern New Jersey and Delaware rebounded sharply.

Stocks on Wall Street were trading lower on the claims report and rising COVID-19 infections in parts of the country. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.

MILLIONS ON UNEMPLOYMENT ROLLS

From manufacturing, retail, information technology and oil and gas production, companies have announced job cuts. State and local governments, whose budgets have been shattered by the COVID-19 fight, are also cutting jobs.

Economists expect an acceleration in layoffs when the government’s Paycheck Protection Program, part of a historic fiscal package worth nearly $3 trillion, giving businesses loans that can be partially forgiven if used for wages, runs out.

They attributed to the PPP a drop in the number of people receiving benefits after an initial week of aid from a record 24.912 million in early May. But these so-called continued claims, which are reported with a one-week lag, also appear to have since stalled. The claims report showed continuing claims dropped 62,000 to 20.544 million the week ending June 6.

Initial claims covered the week during which the government surveyed establishments for the nonfarm payrolls component of June’s employment report. But economists cautioned that claims were no longer a good predictor of job growth.

The government has expanded eligibility for unemployment benefits to include the self-employed and independent contractors who have been affected by the COVID-19 pandemic, including through lost employment, reduced hours and wages. These workers do not qualify for the regular state unemployment insurance.

They must file under the Pandemic Unemployment Assistance (PUA) program and are not included in the initial claims count. Applications for PUA increased 66,063 to 760,526 last week.

A total of 29.2 million people were receiving unemployment benefits under all programs during the week ending May 30, the latest available data, down from 29.5 million in the prior period.

“Employment may rise on a net basis in June as the economy reopens and workers are recalled, but the initial claims data suggest that there is still a steady stream of new layoffs as corporations adjust to the new coronavirus reality,” said Lou Crandall, chief economist of Wrightson ICAP in Jersey City, New Jersey.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

As U.S. workers file for unemployment, some states are less prepared

By Jonnelle Marte

(Reuters) – The U.S. unemployment benefits program, a key part of the safety net for the labor market, is about to face its biggest test in more than a decade.

More than 1.5 million applications could be filed this week, economists said, as people who work for restaurants, bars, hotels and other businesses suddenly find themselves out of work because of the coronavirus.

States that cut unemployment staff and benefits during better economic times may be unprepared for the deluge in applications, analysts say.

“States are just not in a position to respond to this,” said Michele Evermore, a senior policy analyst at the National Employment Law Project in Washington, D.C. “They’re at historically low levels of funding and they’re moving into a state where there may be historically high levels of claims within a couple of weeks.”

The pandemic is dealing a blow to states already facing budget shortfalls. Twenty-three states were short on unemployment insurance trust funds as of last year, before the coronavirus shock, a Department of Labor calculation shows .

Some workers who applied for the program this week were met with downed websites, long waits on phone lines and other delays.

After being laid off from her job as a bar tender in New York City, Caitlin Ma, 29, went online to apply for unemployment and food stamps on Thursday. “But the systems are so bogged down,” she said. To expedite her food stamp application, Ma will have to go physically to the offices, despite health officials’ recommendations.

Making things worse, qualifications and benefits available may also vary based on where workers live.

The U.S. Department of Labor, which sets federal guidelines for the program, recently gave states the flexibility to provide benefits to people temporarily out of work. But states administer the benefits, and not all have made the change.

California made unemployment benefits available to people who had their hours cut because of the virus. New York waived the one-week waiting period for people who are out of work because of closures or quarantines related to the coronavirus. And Massachusetts is providing more leeway for people who are currently receiving benefits but miss a deadline because of the virus, along with other changes.

North Carolina, where filings have already jumped, this week said that anyone “separated from employment” by the virus, including having their hours reduced though still retaining a job, is entitled to unemployment insurance “to the maximum extent” permitted under federal law.

But lawmakers in Mississippi did not agree on a bill to extend access to jobless benefits, and are now on recess until April 1, according to a report in Mississippi Today.

Ten states, including Florida, Alabama, North Carolina and Georgia, have cut their maximum length of benefits over the last several years to be less than 26 weeks, which is the standard for most states.

A bill passed by the Senate this week could increase funding for state labor departments and would make extended benefits available in the states where the unemployment rate rises by at least 10%. That funding could provide needed support to states that are now hiring rapidly to rebuild their staffs, Evermore said.

Broader access to unemployment benefits can help stabilize the economy after a downturn – and speed up the recovery – by providing people who lose their jobs with cash they can use to buy groceries, gas and other necessities. The changes some states are making may help lessen the blow to their local economies.

“It’s unfortunate that it takes a crisis for us to realize how important it is for people to have good unemployment insurance programs,” said Dave Cooper, a senior economic analyst for the Economic Policy Institute in Washington D.C.

Still, the recent adjustments may not fully close the gaps in the system. Self-employed people and contract workers who experience a drop off in business because of the virus may not be able to qualify for help, said Stephen Wandner, a research fellow at the W.E. Upjohn Institute.

“There are all of these other people who are losing their jobs who are not covered by unemployment insurance in the first place,” said Wandner.

(Reporting by Jonnelle Marte. Additional reporting by Jessica Resnick-Ault. Editing by Heather Timmons and Chizu Nomiyama)

Mexico resists U.S. demands on trade deal, wants Senate to back tweaks

Mexico resists U.S. demands on trade deal, wants Senate to back tweaks
By Dave Graham

MEXICO CITY (Reuters) – Mexico’s president on Tuesday pushed back against U.S. efforts to subject his country’s labor market to external oversight under a new North American trade deal, and said the Mexican Senate should be consulted before new changes are signed off.

Mexico approved the United States-Mexico-Canada Agreement (USMCA) earlier this year, but U.S. ratification has been held up by Democratic lawmakers seeking to have stricter enforcement of new Mexican labor rules enshrined in the deal.

Speaking at a regular morning news conference, President Andres Manuel Lopez Obrador said there was no need for supervision of Mexico’s labor standards because his government was fully committed to strengthening workers’ rights.

“We don’t accept that there should be some sort of inspectors checking on whether a company is sticking to what is established by law,” the veteran leftist said.

Instead, Mexico is ready to accept panels made up of representatives of the United States, Mexico and a third country reviewing standards over an extended period, Lopez Obrador said.

Mexican senators should be entitled to give their opinion on what he described as an addendum to the accord, because they would need to ratify any additions, he said.

The president noted Mexican business associations rightly regarded the imposition of monitors on its labor market as a provision which could impede investment.

Mexico’s powerful CCE business association said it was extremely concerned about some of the U.S. labor demands, describing them as “extreme and totally unacceptable.”

“We have the impression that some U.S. players are trying to apply pressure to stop a deal,” the CCE said in a statement. “Respect for Mexican sovereignty is not negotiable.”

Mexico’s chief USMCA negotiator, Jesus Seade, was on Tuesday traveling to Washington for more talks, the government said.

Seade said last week tweaks could be made to how labor disputes are handled to enable an accord, but was cautious on whether a deal was possible this year.

Gearing up for the November 2020 U.S. presidential election, Democrats have been under pressure from American trade unions to ensure that Mexico does not backslide on commitments to strengthen the rights of organized labor in the country.

Those unions have pressed for labor rules that could make lower-cost Mexico less attractive to U.S. companies, which have increased their manufacturing capacity south of the border significantly over the last two decades.

Lopez Obrador said he hoped the USMCA would be approved soon so that the accord is not increasingly caught up in the politics of the U.S. election campaign.

(Reporting by Dave Graham; Editing by Chizu Nomiyama, Steve Orlofsky and Jonathan Oatis)

U.S. consumer spending strong; manufacturing struggling

FILE PHOTO: People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales surged in July as consumers bought a range of goods even as they cut back on motor vehicle purchases, which could help to assuage financial market fears that the economy was heading into recession.

The upbeat report from the Commerce Department on Thursday, however, will likely not change expectations that the Federal Reserve will cut interest rates again next month as news from the manufacturing sector remains dour, underscoring the darkening outlook for the economy against the backdrop of trade tensions and slowing growth overseas.

A key part of the U.S. Treasury yield curve inverted on Wednesday for the first time since June 2007, triggering a stock market sell-off. An inverted Treasury yield curve is historically a reliable predictor of looming recessions.

Financial markets have fully priced in a 25-basis-point rate cut at the U.S. central bank’s Sept. 17-18 policy meeting. The Fed lowered its short-term interest rate by a quarter of a percentage point last month, citing the acrimonious U.S.-China trade war and slowing global economies.

But the data could push markets to dial back expectations of a 50-basis-point rate cut next month.

“So yes, consumers are lifting economic growth and easing pressure on the Federal Reserve to cut more aggressively, but the trade war itself, and the rhetoric that accompanies it will push for more rate cuts,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

Retail sales increased 0.7% last month after gaining 0.3% in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 1.0% last month after advancing by an unrevised 0.7% in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

U.S. stock index futures extended gains after the release of the data. U.S. Treasury yields rose while the dollar <.DXY> was slightly weaker against a basket of currencies.

STRONG LABOR MARKET

July’s gain in core retail sales suggested strong consumer spending early in the third quarter, though the pace will likely slow from the April-June quarter’s robust 4.3% annualized rate. Consumer spending, which accounts for more than two-thirds of the economy, is being underpinned by the lowest unemployment rate in nearly half a century.

While a separate report from the Labor Department on Thursday showed an increase in the number of Americans filing applications for unemployment benefits last week, the trend in claims continued to point to a strong labor market.

Solid consumer spending is blunting some of the hit on the economy from the downturn in manufacturing, which is underscored by weak business investment. There are, however, red flags for the labor market coming from manufacturing.

The sector’s struggles were highlighted by a third report from the Fed on Thursday showing factory production dropped 0.4% in July. Output at factories has declined more than 1.5% since December 2018. Manufacturing, which makes up about 12% of the economy, is also being weighed down by an inventory overhang, especially in the automotive sector.

Manufacturing productivity tumbled at its fastest pace in nearly two years in the second quarter, with factories cutting hours for workers, another report from the Labor Department showed.

Manufacturing’s troubles appear to have persisted into the third quarter. Though a report from the Philadelphia Fed on Thursday showed factory activity in the mid-Atlantic region slowed less than expected in August amid an increase in new orders, manufacturers reported hiring fewer workers.

A measure of factory employment dropped to its lowest level since November 2016. The weakness in factory employment in the region that covers eastern Pennsylvania, southern New Jersey and Delaware was mirrored by another survey from the New York Fed. Activity in New York state was little changed this month, with employment measures deteriorating further.

“The health of factories is still an important driver of growth and the soft patch for production remains a factor that is keeping economic growth in the slow lane,” said Chris Rupkey, chief economist at MUFG in New York.

The economy grew at a 2.1% rate in the second quarter, decelerating from the first quarter’s 3.1% pace. Growth estimates for the third quarter are below a 2.0% rate.

In July, auto sales fell 0.6% after rising 0.3% in June. Receipts at service stations rebounded 1.8%, reflecting higher gasoline prices. Sales at building material stores gained 0.2%.

Receipts at clothing stores increased 0.8%. Online and mail-order retail sales jumped 2.8%, the most in six months, after rising 1.9% in June. They were likely boosted by Amazon.com Inc’s <AMZN.O> Prime Day.

Receipts at furniture stores rose 0.3%. Sales at restaurants and bars accelerated 1.1%. But spending at hobby, musical instrument and book stores dropped 1.1% last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. weekly jobless claims fall; labor market strong

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong even as the economy is slowing.

The jobless claims report from the Labor Department on Thursday, however, does not fully account for the impact of the recent escalation in the bitter trade war between the United States and China, which has led to an inversion of the U.S. Treasury yield curve and raised the risk of a recession.

Worries about the trade war’s impact on the U.S. economic expansion, the longest on record, prompted the Federal Reserve to cut interest rates last week for the first time since 2008. Financial markets have fully priced in another rate cut next month.

Expectations for a 50-basis-point cut at the Fed’s Sept. 17-18 policy meeting have also risen.

“Initial claims have been sending a reasonably upbeat message about conditions in the labor market,” said Daniel Silver, an economist at JPMorgan in New York. “Today’s report likely doesn’t contain much information about the period since the recent escalations in trade tensions.”

Initial claims for state unemployment benefits declined 8,000 to a seasonally adjusted 209,000 for the week ended Aug. 3, the Labor Department said. Economists polled by Reuters had forecast claims would be unchanged at 215,000 in the latest week.

“The message of the unemployment claims data into early August is that layoff activity remained subdued and the labor market is still tight,” said John Ryding, chief economist at RDQ Economics in New York. “Though equity market volatility and low bond yields are driving pessimism about the economic outlook … we would have to see initial claims sustain a rise to the 250,000 level to become concerned about recession.”

U.S. stocks were trading higher as unexpectedly better Chinese data and a steadying of the yuan provided some comfort to investors rattled by the rise in U.S.-China trade tensions. Prices of U.S. Treasuries fell while the dollar <.DXY> was slightly stronger against a basket of currencies.

INVENTORY ACCUMULATION SLOWING Last week’s drop in claims pushed them to the lower end of their 193,000-244,000 range for this year. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, edged up 250 to 212,250 last week.

While hiring has slowed, the pace of job gains remains well above the roughly 100,000 needed per month to keep up with growth in the working-age population.

Nonfarm payrolls increased by 164,000 jobs in July, down from 193,000 in June. Job growth over the last three months averaged 140,000 per month, the lowest in nearly two years, compared to 223,000 in 2018. The moderation in employment growth partly reflects a shortage of workers.

“While net employment growth depends on gross hiring as well as the pace of layoffs, and the trend in payrolls gains may have moderated a bit, major weakening in employment growth is invariably associated with an uptrend in claims,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York.

The economy grew at a 2.1% annualized rate in the second quarter, slowing from the first quarter’s brisk 3.1% pace. Growth is seen below a 2.0% rate in the July-September quarter.

Slower economic growth was also underscored by a separate report from the Commerce Department on Thursday showing wholesale inventories unchanged in June instead of rising 0.2% as estimated last month.

The component of wholesale inventories that goes into the calculation of gross domestic product edged up 0.1% in June.

While inventories increased further in the second quarter, the pace of accumulation was slower than early in the year. Some of that slowdown reflects a surge in consumer spending in the second quarter.

Businesses are also carefully managing stock levels as the economy’s outlook continues to darken amid the escalation in trade tensions between the United States and China, which has roiled financial markets.

Inventories subtracted 0.86 percentage point from GDP growth in the second quarter.

Sales at wholesalers dropped 0.3% in June after falling 0.6% in May. At June’s sales pace it would take wholesalers 1.36 months to clear shelves, unchanged from May.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. weekly unemployment claims rise; imported inflation weak

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits unexpectedly rose last week, which could add to concerns that the labor market was losing steam after job growth slowed sharply in May.

Other data on Thursday showed import prices fell by the most in five months in May amid a broad decline in the cost of goods, the latest indication of muted inflation pressures. Signs of a slowing labor market and tepid inflation strengthen the case for the Federal Reserve to cut interest rates this year.

U.S. central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions. Financial markets have priced in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.

Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 222,000 for the week ended June 8, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims decreasing to 216,000 in the latest week.

While layoffs remain relatively low, the third straight weekly increase in claims suggests some softening in labor market conditions. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,500 to 217,750 last week.

The economy created only 75,000 jobs in May, with annual wages increasing at their slowest pace in eight months, the government reported last week. U.S. financial markets were little moved by the claims data.

The slowdown in hiring, which occurred before a recent escalation in trade tensions between the United States and China, raised fears of a sharp deceleration in economic growth. The claims data is being closely monitored for signs of any fallout from the trade war.

President Donald Trump in early May imposed additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened more duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit later this month in Japan.

A tariff on all goods from Mexico to force authorities in that country to stop immigrants from Central America from crossing the border into the United States was narrowly averted after the two nations struck an agreement late on Friday.

ECONOMY SLOWING

Data so far have suggested a sharp slowdown in U.S. economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. In addition to the sharp moderation in hiring last month, manufacturing production, exports and home sales dropped in April, while consumer spending cooled.

The Atlanta Fed is forecasting gross domestic product increasing at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.

In another report on Thursday, the Labor Department said import prices dropped 0.3% last month, the biggest decline since last December, after edging up 0.1% in April.

Economists had forecast import prices slipping 0.2% in May. In the 12 months through May, import prices fell 1.5% after decreasing 0.3% in April. The report came on the heels of data on Wednesday showing consumer prices remained tame in May.

Import prices exclude duties. In May, prices for imported fuels and lubricants declined 1.0% after rising 1.7% percent in the prior month. Imported food prices dropped 0.8% last month after surging 2.7% in April.

Excluding fuels and food, import prices slipped 0.2% in May after falling 0.3% in the prior month. So-called core import prices decreased 1.5% in the 12 months through May. Though the dollar has weakened a bit this year, its gains last year against the currencies of the United States’ main trading partners continue to depress core import prices.

The cost of imported capital goods declined 0.1% last month. Prices for imported consumer goods excluding automobiles was unchanged. The cost of goods imported from China edged down 0.1% last month after falling 0.2% in April. Prices fell 1.4% in the 12 months through May, the largest drop since February 2017.

The report also showed export prices fell 0.2% in May, with prices for both agricultural and nonagricultural products dropping. Export prices nudged up 0.1% in April. They fell 0.7% on a year-on-year basis in May after gaining 0.2% in April. Soybean prices tumbled 20.6% year-on-year.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

Weak U.S. employment report casts pall over economy

FILE PHOTO: Brochures are displayed for job seekers at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.

The broad cool-off in hiring reported by the Labor Department on Friday was even before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.

Adding a sting to the closely watched employment report, the economy created far fewer jobs in March and April than previously reported.

The economy thus far has been largely resilient to the trade war with China. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing.

Last week, Trump said he would impose a tariff on all goods from Mexico in a bid to force authorities in that country to stop immigrants from Central America from crossing the border into the United States. Talks are ongoing to prevent the duties from kicking in at 5% on June 10.

Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would “act as appropriate to sustain the expansion.”

“Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts,” said Joseph Song, an economist at Bank of America Merrill Lynch in New York.

Nonfarm payrolls increased by 75,000 jobs last month, the government said in its closely watched employment report, falling below the roughly 100,000 needed per month to keep up with growth in the working-age population.

Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000.

In the wake of the weak report financial markets priced in a rate cut as early as July and two more later this year. U.S. Treasury prices rallied, while the dollar dropped against a basket of currencies. Stocks on Wall Street were trading higher.

May’s disappointing job growth was flagged by a report on Wednesday from payrolls processing firm ADP showing the smallest gain in private payrolls in nine years last month. Another report this week showed a drop in online ads by businesses looking for help.

Last month’s slowdown in job gains, however, probably understates the health of the labor market as measures such as weekly applications for unemployment benefits and the Institute for Supply Management’s services employment gauge have suggested underlying strength.

WORKER SHORTAGES

Some of the weakness in hiring last month could be the result of worker shortages, especially in the construction, transportation and manufacturing sectors.

Monthly wage growth remained moderate in May, with average hourly earnings increasing six cents, or 0.2% following a similar gain in April. That lowered the annual increase in wages to 3.1% from 3.2% in April. The average workweek was unchanged at 34.4 hours last month.

The moderation in wage gains, if sustained, could cast doubts on the Fed’s optimism that inflation would return to the U.S. central bank’s 2% target.

The tepid employment report added to soft data on consumer spending, business investment, manufacturing and homes sales in suggesting the economy was losing momentum in the second quarter following a temporary boost from exports, inventory accumulation and defense spending. Growth is cooling as the massive stimulus from last year’s tax cuts and spending increases fades.

The Atlanta Fed is forecasting gross domestic product rising at a 1.5% annualized rate in the second quarter. The economy grew at a 3.1% pace in the first quarter.

The unemployment rate remained near a 50-year low of 3.6% in May. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped two-tenths of a percentage point to 7.1% last month, the lowest since December 2000.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.8% last month.

Hiring slowed across all sectors in May. Manufacturing payrolls increased by 3,000 last month, after gaining 5,000 positions in April. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.

Manufacturing payrolls will be watched closely for signs of any fallout from the trade tensions. Factory output has weakened and sentiment dropped to a 31-month low in May, with manufacturers worried mostly about trade.

Employers in the construction sector hired 4,000 workers in May after adding 30,000 jobs to payrolls in April. Leisure and hospitality sector payrolls increased by 26,000 jobs last month.

Professional and business services employment rose by 33,000. Transportation and warehousing payrolls fell as did retail employment. Government shed 15,000 jobs, the most since January 2018.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

U.S. job openings surge, point to tightening labor market

FILE PHOTO: Job seekers line up at TechFair in Los Angeles, California, U.S. March 8, 2018. REUTERS/Monica Almeida

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job openings rebounded sharply in March, while the pace of hiring was little changed, pointing to a growing worker shortage that could slow employment growth this year.

Despite the tightening labor market conditions, the report from the Labor Department on Tuesday also showed workers still reluctant to voluntarily quit their jobs in droves to seek opportunities elsewhere. The scarcity of workers poses a risk to the economy’s growth prospects. The economy will mark 10 years of expansion in July, the longest in history.

“The risks right now for the economic outlook going forward is there is actually a danger that companies will run out of the help they need to produce goods or sell their services,” said Chris Rupkey, chief economist at MUFG in New York.

“The U.S. economy has never faced a time when labor shortages might endanger or cut short a long economic expansion, but now it does.”

Job openings, a measure of labor demand, surged by 346,000 to a seasonally adjusted 7.5 million, the Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS, showed. The job openings rate rose to 4.7 percent from 4.5 percent in February.

Vacancies in the construction industry increased by 73,000 in March. There were 87,000 job openings in the transportation, warehousing and utilities sector, while real estate, rental and leasing companies had 57,000 unfilled position. Job openings in the federal government, however, decreased by 15,000 in March.

HIRING LAGGING

Hiring was little changed at 5.7 million in March. The hiring rate was steady at 3.8 percent. The lag in hiring suggests employers are experiencing difficulties finding qualified workers, a trend that implies a slowdown in job growth later this year.

There is growing anecdotal evidence of worker shortages, especially in the transportation, manufacturing and construction industries. The economy created 263,000 jobs in April, with the unemployment rate dropping two-tenths of a percentage point to 3.6 percent, the government reported last Friday.

Economists expect job growth to slow to about 150,000 per month this year, still well above the roughly 100,000 needed to keep pace with growth in the working age population.

In March, there were 0.83 job seekers for every job opening. Job openings exceeded the number of unemployed by 1.3 million. Vacancies have outpaced the unemployed for 13 straight months.

The number of workers voluntarily quitting their jobs was little changed at 3.4 million in March, keeping the quits rate at 2.3 percent for a 10th straight month.

The quits rate is viewed by policymakers and economists as a measure of job market confidence. The Federal Reserve last week kept interest rates unchanged and signaled little desire to adjust monetary policy anytime soon.

“You have to hand it to the business community. Despite being on the wrong side of the tight labor market, firms are managing to keep from a major bidding war for workers and are still not losing workers to competitors,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Layoffs slipped in March, lowering the layoffs rate to 1.1 percent from 1.2 percent in the prior month. Layoffs fell in the government sector, but rose slightly in manufacturing and construction. The increase in manufacturing layoffs likely reflected redundancies in the automobile sector, which is experiencing slowing sales and an inventory overhang.

“Layoffs and discharges are extremely low, by historical standards, which reflects that employers need their workers and are prepared to make an effort to retain them,” said Julia Pollak, labor economist at employment marketplace ZipRecruiter.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)