Initial unemployment claims seem to continue to point to worker shortages. In the week ending April 30, 200K initial jobless claims were filed in the US. This brings the four-week average number of initial requests to 188K, up from 180K a week ago. Conditions in the labor market are tighter than before the pandemic, with demands persistently below the 2019 average of 218K.
Continuing demands fell to 1.384 million in the week ended April 23, below expectations for a slight decrease from 1.403 million in the previous week to 1.4 million. The insured unemployment rate remained unchanged at 1%. The bearish trend for continued demand points to employment flows providing some relief from labor shortages. General data confirm that the unemployment rate could reach 3.5% in April.
The rate of non-farm productivity growth came in at -7.5% in Q4 2021, below expectations of a 5.4% decline, which immediately followed the QoQ gain of 6.3%. Non-farm productivity appears to have shown sensitivity to the same factors that pushed GDP growth into negative territory in the first quarter. The negative contribution from net trade lowered non-farm job output in GDP data, while hours worked rose as domestic demand was strong and businesses returned to normal from the Covid cuts. It is worth considering as it is also a historically low series for the Fed, and it also reveals the decrease in productivity despite the quantitative increase in the labor market. This situation can create problems especially in terms of high paid employment.
Unit labor costs rose 11.6%, well above the expected 9.9% increase in the quarter. Employment costs point to rapid rise, reflecting businesses competing for a limited supply of workers. Of course, the detail of hourly wages will be important in the data to be announced tomorrow on this subject. When we look at the indicators monitored in terms of employment costs, unlike hourly wages (AHE) data, ECI is not deteriorated by employment shifts between occupations or industries. In AHE, on the other hand, we can often see wage fluctuations due to job rotations.
The unique causes of the Covid recession, recovery not synchronized across countries, and volatile labor shortages seem to have destabilized productivity growth as well. Increasing wage pressures will push up hourly wages and contribute to inflation as businesses try to adapt to rising labor costs to stay competitive. This still keeps the possibility of a rapid increase in the Fed’s interest rate projections alive. There has been volatility in growth statistics recently, and after the contraction in 1Q22, some downside risks have emerged for 2Q22.
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