In the U.S.: Jobless claims tumble, calms job market fears

3 May 2012

Largest drop in jobless claims in almost a year may soothe some investors…pay attention to private sector additions though!

The number of Americans filing new claims for jobless aid fell more than expected last week, easing fears the labor market recovery was stalling.

Initial claims for state unemployment benefits dropped 27,000 to a seasonally adjusted 365,000, the Labor Department said on Thursday.

The biggest weekly drop in claims since early May last year helped to lift some of the dark cloud cast over the labor market by a report on Wednesday from payrolls processor ADP showing private employers in April created the fewest jobs in seven months.

“This offsets the concerns from yesterday’s ADP number. You’re getting mixed signals…It might not be as bad as we were thinking after ADP,” said Phil Flynn, a senior market analyst at PFG Best in Chicago.

Economists polled by Reuters had forecast claims falling to 380,000 last week. The four-week average of new claims, considered a better of measure of labor market trends, rose 750 to 383,500 – the highest level since December.

The data has no bearing on the government’s closely watched employment report for April, to be released on Friday. Employers are expected to have added 170,000 new jobs to their payrolls last month, a step up from March’s 120,000 tally, according to a Reuters survey.

However, there is a downside risk to this forecast. Initial claims were elevated for much of April and the ADP survey showed private employers added only 119,000 jobs last month.

A separate report from Challenger, Gray & Christmas showed planned layoffs by employers rose 7.1 percent last month as cash-strapped state and local governments laid off teachers.


Nonfarm payrolls had averaged 246,000 jobs per month between December and February. Most economists have viewed the pull-back in job growth as payback after the weather-induced gains in the previous months.

Federal Reserve Chairman Ben Bernanke said last week an unseasonably warm winter had probably brought forward some of the hiring by companies, likely artificially boosting payrolls in January and February.

A second report from the Labor Department showed nonfarm productivity fell in the first quarter as companies hired more workers to maintain output, but a moderate rise in wages suggested little pressure on company profits and inflation.

Productivity slipped at a 0.5 percent annual rate after rising at an upwardly revised 1.2 percent rate in the last three months of 2011.

The decline in productivity, which measures hourly output per worker, was in line with expectations. Fourth-quarter productivity had been previously reported to have increased at a 0.9 percent rate.

The fall in productivity was the first since the second quarter of 2011 and the biggest decline since the first quarter of that year.

Productivity grew rapidly as the economy emerged from the 2007-09 recession, peaking at an 8.3 percent growth rate in the second quarter of 2009. The gains were driven by companies’ cutting costs, particularly for labor.

But businesses are finding it hard to squeeze more output from the existing pool of labor. In the first quarter, employers added about 635,000 new jobs to their payrolls, even though the economy grew at an anemic 2.2 percent annual rate.

Some Fed officials, including Bernanke believe companies drastically cut their workforces and are now seeking an alignment with the expected demand for their products.

The productivity report showed unit labor costs grew at 2.0 percent rate in the first quarter after increasing at a 2.7 percent pace in the fourth quarter.

However, the slump in productivity and the rise in labor costs are unlikely to pressure corporate profits given that businesses have very strong balance sheets. American companies are sitting on an estimated $2 trillion cash pile.

Wage inflation remains benign amid an 8.2 percent unemployment rate. In the first quarter, hours of all workers increased at a 3.2 percent rate after rising at a 2.4 percent rate in the October-November period.

The increase in hours last quarter was the largest since the second quarter of 2010.

Growth in compensation per hour, when adjusted for inflation, fell at a 0.9 percent rate after rising 2.6 percent in the fourth quarter.


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