Tag Archives: fiscal stimulus

U.S. weekly jobless claims unexpectedly rise, but labor market improving

By Lucia Mutikani

WASHINGTON (Reuters) -The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but the increase likely understated the rapidly improving labor market conditions as more parts of the economy reopen and fiscal stimulus kicks in.

The second straight weekly increase in claims reported by the Labor Department on Thursday was at odds with reports this month showing the economy created 916,000 jobs in March, the most in seven months, and job openings increased to a two-year high in February.

“Our belief is that continued moves to reopen the economy will result in a solid further advance in payrolls in the April jobs report and that the claims data are likely not capturing the pace of improvement in the labor market,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

Initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 744,000 for the week ended April 3 compared to 728,000 in the prior week. Data for the prior week was revised to show 9,000 more applications received than previously reported.

Economists polled by Reuters had forecast 680,000 applications for the latest week. Though claims have dropped from a record 6.149 million in early April of 2020, they remain more than double their pre-pandemic level. In a healthy labor market, claims are normally in a range of 200,000 to 250,000.

Part of the elevation in claims is because of fraud, multiple filings and backlogs following the enhancement of the unemployment benefit programs.

The government is paying a weekly $300 unemployment supplement, as well as funding benefits for the self-employed, gig workers and others who do not qualify for the regular state unemployment insurance programs.

The weekly subsidy and the Pandemic Unemployment Assistance (PUA) program will run through Sept. 6.

Including the PUA program, 892,539 people filed claims last week, remaining below one million for a third straight week.

The increase in applications was led by California and New York. There were big drops in Alabama and Texas, as well as Ohio, which has been beset by fraudulent applications.

“The total number of filings for all unemployment insurance programs has remained stubbornly steady over the last few months despite net re-hiring in monthly employment reports,” said Veronica Clark, an economist at Citigroup in New York.

“This could partly be a reflection of more workers wanting to stay on unemployment benefits even if some return to work part-time given the greater size of payments.”

U.S. stocks opened largely higher. The dollar fell against a basket of currencies. U.S. Treasury prices gained.

COMPANIES HIRING

The labor market has regained its footing after stumbling in December, thanks to the White House’s massive $1.9 trillion pandemic rescue package and an acceleration in the pace of COVID-19 vaccinations, which are allowing more services businesses to resume operations.

In the minutes of the Federal Reserve’s March 16-17 policy meeting released on Wednesday, U.S. central bank officials acknowledged the improvement in labor market conditions and “expected strong job gains to continue over coming months and into the medium term.”

Several Fed officials suggested the latest relief package “could hasten the recovery, which could help limit longer-term damage in labor markets caused by the pandemic.”

Anecdotal evidence suggests companies are recalling workers laid off during the pandemic and hiring new employees. An Institute for Supply Management survey on Monday showed services businesses reporting they “have recalled everyone put on waivers and made new hires” and had “additional employees added to service the needs of new customers at new locations.”

Still, the labor market recovery has a long way to go. Employment is 8.4 million jobs below its peak in February 2020.

The claims report also showed the number of people receiving benefits after an initial week of aid decreased 16,000 to 3.734 million in the week ended March 27. That was the lowest reading since March 2020 when mandatory closures of non-essential businesses were being enforced across many states to slow the first wave of COVID-19 infections.

The 12th straight weekly decline in the so-called continuing claims in likely due to people finding work and exhausting their eligibility for benefits, limited to 26 weeks in most states. About 5.634 million people were on extended benefits during the week ended March 20, up 117,108 from the prior week.

Another 786,962 were on a state program for those who have exhausted their initial six months of aid, down 230,780 from the week before. There were 18.2 million receiving benefits under all programs during the week ended March 20.

(Reporting by Lucia MutikaniEditing by Chizu Nomiyama and Paul Simao)

U.S. consumer confidence hits one-year high; house prices soar

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer confidence raced in March to its highest level since the start of the COVID-19 pandemic, supporting views that economic growth will accelerate in the coming months, driven by more fiscal stimulus and an improving public health situation.

The survey from the Conference Board on Tuesday also showed consumers were fairly upbeat about the labor market, with a measure of household employment rebounding after declining in February. Restrictions on non-essential businesses are being rolled back as more Americans get vaccinated against COVID-19.

That, along with the White House’s massive $1.9 trillion pandemic relief package, has led economists to predict the economy will this year experience it best performance in nearly four decades. The survey showed more consumers intended to buy homes, cars and household appliances over the next six months.

“Consumers finally are fully on board with the pending expansion,” said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia. “What remains to be seen is how quickly services industries such as travel and leisure will open up, allowing venues for consumers to release their pent-up demand.”

The Conference Board’s consumer confidence index jumped 19.3 points to a reading of 109.7 this month, the highest level since the onset of the pandemic in March 2020. The increase was the largest since April 2003. Confidence remains well below its lofty reading of 132.6 in February 2020. Economists polled by Reuters had forecast the index would rise to 96.9.

The survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, soared to a reading of 110.0 from 89.6 last month. The expectations index, based on consumers’ short-term outlook for income, business and labor market conditions increased to 109.6 from a reading of 90.9 in February.

Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury prices were largely lower.

INFLATION WORRIES

The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, rebounded to a reading of 7.8 this month from -0.8 in February. That measure closely correlates to the unemployment rate in the Labor Department’s employment report.

That fits in with expectations for a sharp acceleration in job growth this month. According to a Reuters survey of economists, nonfarm payrolls likely increased by 639,000 jobs in March after rising by 379,000 in February. The government is due to publish its closely-watched employment report for March on Friday.

The share of consumers expecting an increase in income over the next six months rose to 15.5% from 14.8% last month. The proportion anticipating a drop increased to 13.3% from 12.9% in February. More consumers expected to purchase homes, motor vehicles and major household appliances compared to February.

Consumers’ inflation expectations over the next 12 months increased to 6.7% from 6.5% in February.

“Consumers’ renewed optimism boosted their purchasing intentions for homes, autos and several big-ticket items,” said Lynn Franco, senior director of economic indicators at the Conference Board. “However, concerns of inflation in the short-term rose, most likely due to rising prices at the pump, and may temper spending intentions in the months ahead.”

The rise in house-buying intentions suggests demand for homes could remain strong and continue to drive up prices as supply remains tight. The housing market is being powered by demand for more spacious accommodations for home offices and schooling. It remains strong despite a rise in mortgage rates this year.

A separate report on Tuesday showed the S&P CoreLogic Case-Shiller 20-metro-area house price index soared 11.1% in January from a year ago, the fastest in 15 years, after increasing 10.2% in December.

“A wave of eager buyers is being forced to act swiftly and face heightened competition for the few homes available,” said Matthew Speakman, an economist at Zillow. “The combined dynamic is pushing prices upward at their strongest pace in years, and it doesn’t appear that there is an end in sight.”

(Reporting by Lucia MutikaniEditing by Chizu Nomiyama and Paul Simao)

U.S. factory activity cools; cost pressures mounting

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. factory activity slowed in early February likely as a global semiconductor chip shortage hurt production at automobile plants, while prices of inputs and manufactured goods soared, which could heighten fears of strong inflation growth this year.

The report from data firm IHS Markit on Friday also showed businesses in the services industry were experiencing higher costs related to the procurement of personal protective equipment, a greater proportion of which they were passing on to clients “through a marked rise in selling prices.”

Inflation is being closely watched amid concerns from some quarters that President Joe Biden’s proposed $1.9 trillion COVID-19 rescue package could cause the economy to overheat. The package would be on top of nearly $900 billion in additional fiscal stimulus provided at the end of December.

“A concern is that firms’ costs have surged higher, driving selling prices for goods and services up at a survey record pace and hinting at a further increase in inflation,” said Chris Williamson, chief business economist at IHS Markit.

IHS Markit’s flash U.S. manufacturing PMI dropped to 58.5 in the first half of this month from a final reading of 59.2 in January. Extreme weather in large parts of the United States was also blamed. The data was in line with economists’ forecasts.

A reading above 50 indicates growth in manufacturing, which accounts for 11.9% of the U.S. economy. Manufacturing has powered ahead as the pandemic left Americans grounded at home, shifting demand to household goods from services like airline travel and hotel accommodation.

But the coronavirus has disrupted labor at both suppliers and manufacturers, leading to shortages of goods critical to the production processes. Motor vehicle manufacturers have been hit by a semiconductor chip shortage, leading some to temporarily close assembly plants this month.

General Motors announced it would take down production entirely at its Fairfax plant in Kansas City during the week of Feb. 8. Ford Motor has reduced shifts at its Dearborn truck plant and Kansas City assembly plant.

The supply chain bottlenecks, which are widespread across the manufacturing sector as well as the services industry, have led to higher prices for inputs, including raw materials. The survey’s measure of prices paid by manufacturers shot up to its highest level since April 2011. A gauge of prices received by factories surged to its highest level since July 2008.

Though price pressures are expected to rise as last year’s low readings drop out of the calculation, there is no consensus among economists whether higher inflation would stick beyond the so-called base effects.

Federal Reserve Chair Jerome Powell said last week while he expected inflation to be boosted by base effects and pent-up demand when the economy fully reopens, that would be transitory, citing three decades of lower and stable prices.

The inflation outlook will likely hinge on the labor market, which is currently experiencing considerable slack, with at least 18.3 million Americans on unemployment benefits.

While the manufacturing expansion cooled, activity in the services industry gained traction this month.

The IHS Markit’s flash services sector PMI edged up to 58.9 from a final reading of 58.3 in January. The highest reading since March 2015 came as new COVID-19 infections and hospitalization rates dropped, allowing authorities to roll back some restrictions on consumer-facing businesses.

The services sector, which accounts for more than two-thirds of U.S. economic activity, has borne the brunt of the pandemic.

Cost burdens for services businesses increased at their steepest pace since October 2009, leading to firms boosting their selling prices at the sharpest rate on record.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

STRONG HOUSING MARKET

Manufacturing and housing are leading the economy’s recovery from the pandemic recession. In a separate report on Friday, the National Association of Realtors said existing home sales rose 0.6% to a seasonally adjusted annual rate of 6.69 million units in January.

Economists polled by Reuters had forecast sales would fall 1.5% to a rate of 6.61 million units in January. The second straight monthly increase in sales was despite contracts to buy a home declining for four consecutive months. The NAR attributed the misalignment to different sample sizes.

Home resales, which account for the bulk of U.S. home sales, surged 23.7% on a year-on-year basis. The gains have defied tight supply, which has led to a surge in house price inflation. Sales last month were concentrated in the mid-to-upper price range of the market. Sales fell in the Northeast and West. They, however, rose in the South and the Midwest.

“Existing home sales will remain strong but will be unable to move significantly higher until more supply appears,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

The housing market is being driven by still historically low mortgage rates, and demand for spacious accommodations for home offices and schooling.

There were a record-low 1.04 million previously owned homes on the market in January, down 25.7% from one year ago. The median existing house price shot up 14.1% from a year ago to $303,900 in January.

At January’s sales pace, it would take 1.9 months to exhaust the current inventory, down from 3.1 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.

Persistently high U.S. weekly jobless claims point to labor market scarring

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for jobless benefits rose to a two-month high last week, stoking fears the COVID-19 pandemic was inflicting lasting damage to the labor market.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed at least 25 million were on jobless benefits at the end of September. It reinforced views the economy’s recovery from the recession, which started in February, was slowing and in urgent need of another government rescue package.

The economic hardship wrought by the coronavirus crisis is a major hurdle to President Donald Trump’s chances of getting a second term in the White House when Americans go to the polls on Nov. 3. Former Vice President Joe Biden, the Democratic Party’s candidate, has blamed the Trump administration’s handling of the pandemic for the worst economic turmoil in at least 73 years.

“The increase in initial claims is disturbing,” said Chris Low, chief economist at FHN in New York. “It is difficult to see it and not think the recovery is vulnerable.”

Initial claims for state unemployment benefits increased 53,000 to a seasonally adjusted 898,000 for the week ended Oct. 10. Data for the prior week was revised to show 5,000 more applications received than previously reported.

Economists polled by Reuters had forecast 825,000 applications in the latest week. The surprise increase came even as California processed no claims. California, the most populous state in the nation, suspended the processing of new applications for two weeks in late September to combat fraud. It resumed accepting claims last Monday.

Unadjusted claims rose 76,670 to 885,885 last week. Economists prefer the unadjusted number given earlier difficulties adjusting the claims data for seasonal fluctuations because of the economic shock caused by the pandemic. Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.3 million people filed claims last week.

Seven months into the pandemic in the United States, first-time claims remain well above their 665,000 peak during the 2007-09 Great Recession, though below a record 6.867 million in March. With new COVID-19 cases surging across the country and the White House and Congress struggling to agree on another rescue package for businesses and the unemployed, claims are likely to remain elevated.

Treasury Secretary Steven Mnuchin said on Thursday he would keep trying to reach a deal with House Speaker Nancy Pelosi, a Democrat, before next month’s election.

Stocks on Wall Street were lower. The dollar gained versus a basket of currencies. U.S. Treasury prices rose.

MILLIONS EXHAUST BENEFITS

About 3.8 million people had permanently lost their jobs in September, with another 2.4 million unemployed for more than six months. Economists fear those numbers could swell.

Though the claims report showed a decline in the number of people on unemployment rolls in early October, economists said that was because many people had exhausted their eligibility for benefits, which are limited to six months in most states.

The number of people receiving benefits after an initial week of aid declined 1.165 million to 10.018 million in the week ending Oct. 3.

About 2.8 million workers filed for extended unemployment benefits in the week ending Sept. 26, up 818,054 from the prior week. That was the largest weekly gain since the program’s launch last spring. These benefits are set to expire on Dec. 31.

Tens of thousands of airline workers have been furloughed. State and local government budgets have been crushed by the pandemic, leading to layoffs that are expected to escalate without help from the federal government.

“Risks to the labor market outlook are weighted heavily to the downside,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The increased spread of the virus across much of the country could result in an even larger pullback in business activity than expected.”

Though economic activity rebounded in the third quarter because of fiscal stimulus, the stubbornly high jobless claims suggest momentum ebbed heading into the fourth quarter.

Other reports on Thursday showed mixed fortunes for regional manufacturing in October. A survey from the New York Federal Reserve showed its business conditions index fell seven points to a reading of 10.5 this month. Companies reported continued gains in new orders and shipments, though unfilled orders maintained their decline. Factory employment rose modestly, but the average workweek increased significantly.

Separately, the Philadelphia Fed said its business conditions index jumped to a reading of 32.3 from 15.0 in September. Measures of new orders and shipments at factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware rose. A gauge of factory employment fell, but manufacturers increased hours for workers.

Third-quarter GDP growth estimates are topping a 32% annualized rate. The economy contracted at a 31.4% pace in the second quarter, the deepest decline since the government started keeping records in 1947. Growth estimates for the fourth quarter have been cut to as low as a 2.5% rate from above a 10% pace.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

Pandemic could trigger social unrest in some countries: IMF

Pandemic could trigger social unrest in some countries: IMF
By Andrea Shalal

WASHINGTON (Reuters) – New waves of social unrest could erupt in some countries if government measures to mitigate the coronavirus pandemic are seen as insufficient or unfairly favoring the wealthy, the IMF (International Monetary Fund) said in a new report on Wednesday.

Governments had already spent nearly $8 trillion to combat the pandemic and mitigate the economic fallout, but more fiscal stimulus would be needed once the crisis abated, the global lender said in its semi-annual Fiscal Monitor.

The spike in spending would sharply widen fiscal deficits, with global public debt set to rise 13 percentage points to more than 96% of gross domestic product in 2020, it said.

On Tuesday, the IMF forecast the global economy to shrink 3.0% during 2020 as a result of the pandemic, but warned that its forecasts were marked by “extreme uncertainty” and outcomes could be far worse.

Efforts to halt the disease have shut down large swaths of the global economy, with emerging market and developing countries likely to be hardest hit.

While mass protests are unlikely with strict lockdowns in place, unrest could spike when the crisis appeared to be under control, Vitor Gaspar, director of the IMF’s fiscal affairs department, told Reuters in an interview.

To avert further unrest following numerous protests in many parts of the world over the past year, policymakers must communicate with affected communities to build support for measures to tackle the virus, he said.

“This is something we have emphasized: it is crucial to provide support to households and firms that are made vulnerable by the crisis,” he said. “The goal is to support and protect people and firms that have been affected by shutdowns.”

Tensions are already becoming evident as lockdowns leave day laborers and many in the informal economy without jobs or food.

In India’s commercial capital of Mumbai, thousands of jobless migrant workers protested on Tuesday at a railway station, demanding to be allowed to return to their homes in the countryside, after Prime Minister Narendra Modi extended a lockdown of the population of 1.3 billion.

Unemployment has almost doubled to around 14.5% in India since the lockdown began in late March, according to the Centre for Monitoring Indian Economy, a private think-tank.

In India and elsewhere, shutdowns have sparked an exodus of millions of workers from city jobs in small industries and service jobs back to their home villages.

Daily wage earners are particularly vulnerable, and many are already having to skip meals, say World Bank officials.

IMF chief economist Gita Gopinath said previous crises and disasters had fostered solidarity, but there could be a different outcome this time.

“If the crisis is badly managed and it’s viewed as having been insufficient to help people, you could end up with social unrest,” she told Reuters.

To avoid future protests, she said it was critical for the international community to play a supportive role for poorer countries through concessional financing and debt relief.

The report said government spending to date included direct fiscal costs of $3.3 trillion, public sector loans and equity injections of $1.8 trillion, plus $2.7 billion in guarantees and other contingent liabilities of $2.7 trillion.

It forecast lower output and said government revenue was now forecast to be 2.5% of global GDP, lower than was projected in October.

Gaspar said it was hard to predict how much more spending would be needed, but broad-based fiscal stimulus would be an important tool to foster recovery once the outbreak abated.

(Reporting by Andrea Shalal; Editing by Clarence Fernandez)