WASHINGTON: The number of Americans filing new claims for unemployment benefits fell more than expected last week as the labor market remains tight amid strong demand for workers despite rising interest rates and tightening financial conditions.
Initial claims for state unemployment benefits decreased 8,000 to a seasonally adjusted 210,000 for the week ended May 21, the Labor Department said on Thursday. The decline partially unwound some of the prior week’s surge, which had pushed claims to their highest level since January.
“The labor market data are still signaling that demand for labor remains strong,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “That should keep layoffs low for now.”
Economists polled by Reuters had forecast 215,000 applications for the latest week. Some blamed the recent increase in applications to less generous seasonal factors in May, the model that the government uses to strip out seasonal fluctuations from the data, relative to the prior two months.
Others, however, believed some retailers were laying off workers. Several retailers, including Walmart Inc, last week cut their full-year earnings forecasts, warning that inflation was squeezing profits.
Weak profitability was confirmed by a separate report from the Commerce Department on Thursday showing corporate profits from current production fell at a $66.4 billion, or 2.3% rate, in the first quarter. Domestic profits of financial corporations declined at a $28.6 billion pace, while domestic profits of nonfinancial corporations dropped at a $21.1 billion rate. Profits from the rest of the decreased at a $16.7 billion rate.
The Federal Reserve has raised its policy interest rate by 75 basis points since March. The US central bank is expected to hike the overnight rate by half a percentage point at each of its next meetings in June and July.
That has led to a sharp sell-off on the stock market and a surge in Treasury yields and the dollar. There are worries that the Fed’s aggressive monetary policy posture could push the economy into recession next year.
Record Job Openings
The number of people receiving benefits after an initial week of aid increased 31,000 to 1.346 million during the week ending May 14. But with a record 11.5 million job openings at the end of March, layoffs are likely to be minimal and people who lose a job can easily find another one. Claims are down from an all-time high of 6.137 million in early April 2020.
Minutes of the Fed’s May 3-4 meeting published on Wednesday showed officials commenting that “demand for labor continued to outstrip available supply across many parts of the economy and that their business contacts continued to report difficulties in hiring and retaining workers.” Many expected the labor market to remain tight and wage pressures to stay elevated for some time.
Higher wages, though they are trailing inflation, are helping consumers to keep spending and supporting the economy.
While the Commerce Department confirmed the economy contracted in the first quarter under the weight of a record trade deficit and a slightly slower pace of inventory accumulation compared to the fourth quarter, other measures of growth were solid.
Gross domestic product decreased at a 1.5 annualized rate last quarter, the government said in its second GDP estimate, revised down from the 1.4% pace of decline reported in April. The economy grew at a robust 6.9% pace in the fourth quarter.
Final sales to private domestic purchasers, which exclude trade, inventories and government spending, increased at a 3.9% rate. This measure of domestic demand was previously reported to have grown at a 3.7% rate. The upward revision reflected a stronger pace of consumer spending than initially thought.
Also underscoring the economy’s resilience, output increased at a 2.1% pace last quarter when measured from the income side. Gross domestic income grew at a 6.3% in the fourth quarter.
“Historically, when inflation is high and the Federal Reserve is working hard to quell it, recessions happen more often than not,” said Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “But our tried-and-true recession indicators continue to signal that, while recession risks are indeed uncomfortably high, a recession is still not the most likely scenario for the US economy.”