The number of Americans filing new claims for unemployment benefits dropped to a 19-month low last week, pointing to a tightening labour market, though a shortage of workers could keep the pace of hiring moderate in October.
Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 290,000 for the week ended October 16, the Labor Department said on Thursday. That was lowest level since the middle of March in 2020, when the nation was in the early stage of the COVID-19 pandemic. It was also the second straight week that claims remained below 300,000 as employers hold on to workers in the face of an acute labour shortage.
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Economists polled by the Reuters news agency had forecast 300,000 claims for the latest week. Claims have declined from a record high of 6.149 million in early April 2020. A 250,000-300,000 range for claims is seen as consistent with a healthy labour market.
The pandemic has upended labour market dynamics, leading to a staggering 10.4 million job openings as of the end of August even as about 7.7 million people were officially unemployed in September. A range of factors has been blamed for the disconnect, including lack of childcare, generous federal government-funded unemployment benefits, early retirements and career changes.
Though schools have reopened for in-person learning and the expanded unemployment benefits ended in early September, there was no boost to the labour force last month. About 183,000 people dropped out, leading to a decline in the labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one.
“We remain sceptical that the end of expanded unemployment benefits will lead to a substantial and quick return to the labour force in the near-term,” said Veronica Clark, an economist at Citigroup in New York.
The claims data covered the period during which the government surveyed employers for the nonfarm payrolls component of October’s employment report. Filings dropped between the September and October survey weeks, implying a pickup in employment growth this month.
Claims data, however, has not been a reliable indicator of employment growth during the past year because of the upheaval caused by the pandemic. Labour shortages are occurring across all industries, and are causing congestion at ports and hurting production at factories, as well as leaving shelves empty and fanning inflation.
The paucity of workers was echoed by the Federal Reserve’s Beige Book report of anecdotal information on business activity collected from contacts nationwide published on Wednesday, which showed “employment increased at a modest to moderate rate in recent weeks, as demand for workers was high, but labour growth was dampened by a low supply of workers.”
Nonfarm payrolls increased by just 194,000 jobs in September, the fewest in nine months. Employment is 5.0 million jobs below its peak in February 2020.
Shortages of workers and raw materials have led economists to anticipate that gross domestic growth slowed to as low as a 0.5 percent annualised rate in the third quarter after accelerating at a 6.7 percent pace in the April-June quarter.