The International Trade Council reports that the U.S. economy has experienced positive developments, with the number of Americans filing new claims for unemployment benefits showing a moderate increase last week and a decline in layoffs throughout September. These indicators point to ongoing tight labor market conditions as the third quarter came to a close.
Furthermore, the U.S. economic outlook for the last quarter was strengthened by additional data released on Thursday, revealing that the trade deficit in August shrank to its smallest level in nearly three years. This improvement was driven by record-high exports of capital goods. Despite substantial interest rate hikes by the Federal Reserve to temper demand, the U.S. economy has demonstrated resilience, raising the possibility of further rate increases by year-end.
Christopher Rupkey, chief economist at FWDBONDS in New York, noted, "Demand in the economy continues to strengthen which can only serve to worry Fed officials even more, and puts the progress in bringing inflation down in jeopardy."
Initial claims for state unemployment benefits increased by 2,000 to a seasonally adjusted 207,000 for the week ending Sept. 30, as reported by the Labor Department. Economists polled by Reuters had anticipated 210,000 claims for the same week. Throughout much of September, claims remained within the range of 194,000 to 265,000, indicating that employers are hesitant to release workers amid ongoing labor market challenges.
An Institute for Supply Management survey confirmed the competitive labor market sentiment among services businesses, with some employers reporting difficulties in filling vacant positions.
While claims may see an uptick this month due to the United Auto Workers (UAW) strike, now in its third week, supply chain disruptions have led to temporary layoffs of non-striking workers by manufacturers such as Ford Motor, General Motors, and Chrysler-parent Stellantis.
The U.S. labor market remains robust but is gradually cooling. The government's recent report revealed 1.51 job openings for every unemployed person in August, marking the highest number in two years.
According to a separate report by global outplacement firm Challenger, Gray & Christmas, U.S. companies announced 47,457 job cuts in September, marking a 37% decrease from August but a 58% increase compared to the same period last year. However, job cuts for the third quarter declined by 22% compared to the April-June quarter.
The overall strength of the labor market suggests that the Federal Reserve may maintain higher interest rates for an extended period. While many economists believe the central bank has concluded its rate hikes, it has raised its benchmark overnight interest rate by 525 basis points to the current range of 5.25%-5.50% since March 2022.
The number of individuals receiving jobless benefits after their initial week of aid, a proxy for hiring, decreased by 1,000 to 1.664 million during the week ending Sept. 23, according to the claims report. These figures do not impact September's employment report, set for release on Friday, as they fall outside the survey period. However, claims dropping below 220,000 in September led some economists to suggest that job growth may surpass expectations.
According to a Reuters survey of economists, nonfarm payrolls are projected to increase by 170,000 jobs in September after rising by 187,000 in August. The unemployment rate is expected to decline to 3.7% from 3.8% in August.
Veronica Clark, an economist at Citigroup in New York, noted, "The tightening of the trade balance should boost GDP as foreign consumers buy more American goods and as the manufacturing industry comes off its bottom," adding, "Growth is likely to remain supported in the near term.