The strength in the labor market reported by the Department of Labor on Thursday could push the Federal Reserve to raise interest rates by half a percentage point at its next policy meeting in May.
The chairman of the Fed, Jerome Powellsaid on Monday that the central bank must “move fast” in the rate hike cycle and possibly “more aggressively” to prevent high inflation from taking hold.
Last week, the central bank raised its key interest rate by 25 basis points, the first hike in more than three years.
“American companies are not laying off workers because they know the enormous challenges they face in filling open positions,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.
“If initial claims stay below 200,000 for a period of time, it will raise a red flag for the Fed.”
Initial claims for state jobless benefits fell 28,000 to a seasonally adjusted 187,000 for the week ending March 19, the lowest level since September 1969.. Economists polled by Reuters had on average forecast 212,000 claims for the latest week.
Orders have fallen in part as Covid-19 restrictions were lifted across the country amid a massive drop in coronavirus cases. Subsidy claims have eased from an all-time high of 6.15 million reported in early April 2020.
There are no signs that Russia’s war against Ukrainewhich has pushed gasoline prices in the United States to record levels, has impacted the labor market.
But supply bottlenecks are restricting business spending on equipment. A separate report from the Commerce Department showed on Thursday that orders for non-defense capital goods – excluding aircraft – fell 0.3% last month after rising 1.3% in January.
Economists had forecast core capital goods orders, a measure closely watched by the Fed, to rise 0.5%.
Shipments of core capital goods rose 0.5% last month after rising 2.1% in January. The underlying capital goods shipments are used to calculate equipment spending in the Gross Domestic Product reading. Economists still expect strong business investment in equipment this quarter.
“February declines may represent a change in companies’ intentions for capital spending, but February numbers may also reflect noise on monthly data,” said Daniel Silver, an economist at JPMorgan in New York.
“We believe real equipment spending is on track for strong growth in the first quarter, even with related price increases offsetting some of the nominal gains”he declared.
LABOR SHORTAGE
Companies are desperate for workers. There were 11.3 million job vacancies at the end of January, with a record 1.8 job vacancies per unemployed person.
This mismatch between labor demand and supply is fueling wage growth, providing some cushion to households from rising gasoline prices, as well as fueling inflation.
The subsidy claims report also showed the number of people receiving benefits after an initial week of aid fell by 67 billion to 1.35 billion during the week ending March 12, the lowest level since January 1970.
“These data suggest that the March jobs report is likely to be similar to recent reports, which have shown strong job growth and continued declines in the unemployment rate,” said Conrad DeQuadros, senior economic adviser at Brean Capital. In New York.
Source: Ambito
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