US jobless claims fall, could sooth Fed’s concerns
New claims for jobless benefits fell last week to a near six-year low
US gross domestic product grew at a 2.5 per cent annual rate between April and June. Photograph: Tomohiro Ohsumi/Bloomberg
The number of Americans filing new claims for jobless benefits fell last week to a near six-year low, bolstering the case for the Federal Reserve to wind down an economic stimulus programme.
Another economic report today confirmed a solid pace of economic growth in the second quarter, although it also showed a worrisome decline in consumer prices.
Initial claims for state unemployment benefits dropped 5,000 last week to a seasonally adjusted 305,000, the Labor Department said. That points to a labour market that is continuing to heal from the 2007-09 recession despite this year’s harsh government austerity and mounting concerns that political dysfunction could trigger a sovereign debt crisis.
The drop in claims could bode well for employers adding workers to their payrolls and sooth concerns at the Federal Reserve, which last week said it was postponing a plan to reduce monthly bond purchases aimed at keeping interest rates low to support the labour market.
“Claims are signaling further acceleration in payrolls gains,” said Jim O’Sullivan, an economist at High Frequency Economics in Valhalla, New York. The Fed said it held back because of concerns over a still-weak labour market, although Fed chairman Ben Bernanke said policymakers were also worried about a debate in Congress over fiscal policy.
Congress must raise a limit on government borrowing by mid-October or the nation could begin defaulting on its obligations soon after. Lawmakers are also trying to reach a deal to keep most government offices from shutting after this month when budgets are due to expire.
Economists polled by Reuters had expected the number of new claims to rise last week, and the decline drove gains in stock prices and yields on U.S. government debt.
The reading gives a clearer view of the labour market’s health after an update in government computer systems in California and Nevada threw claims data into disarray earlier this month. The updates created a backlog in unprocessed claims that had been distorting the data, but a Labor Department analyst said both states had reported they had caught up in counting new filings.
The four-week average of new claims, which smooths out weekly volatility, fell 7,000 to 308,000, the lowest level since June 2007.
In a separate report, the US government said it still estimated that US gross domestic product, a measure of all the goods and services produced in the economy, grew at a 2.5 per cent annual rate between April and June. That is a respectable pace of growth, especially considering that Washington hiked taxes in January and slashed the federal budget in March.
Government austerity dragged on growth a little less in the second quarter than initially estimated, chipping about a tenth of a point off the growth rate, the data showed. But in a more worrisome sign, the Commerce Department said prices for goods and services purchased by US households fell for the first time in four years. The department’s price index for consumer purchases, which is the Federal Reserve’s preferred gauge of inflation, fell at a 0.1 per cent annual rate.
It was the first decline since the first quarter of 2009, which were some of the darkest days of the 2007-09 recession. Even stripping out volatile food and energy costs, prices rose at only a 0.6 per cent rate, also the weakest reading for this so-called core category since early 2009. The weak readings could worry policymakers at the Fed because it suggests businesses have little leverage to raise prices. (Reuters)