The number of Americans filing new claims for unemployment benefits dropped to their lowest level since 1969 last week, pointing to sustained strength in the economy as a year marked by shortages and an unending pandemic winds down.
The plunge in claims reported by the Labor Department on Wednesday was exaggerated by the model the government uses to strip out seasonal fluctuations from the data. Still, the labour market recovery is gathering momentum, with the number of people on unemployment rolls hitting the lowest level since mid-March 2020 when the economy was in the grips of the first wave of COVID-19 infections.
“There might be some seasonal adjustment problems, but the handwriting is on the wall and all the anecdotal reports on how companies cannot find the help they need are true,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The economy will finish the year with a bang.”
Initial claims for state unemployment benefits tumbled 71,000 to a seasonally adjusted 199,000 for the week ended Nov. 20, the lowest level since mid-November 1969.
Economists polled by Reuters had forecast 260,000 applications for the latest week. The decline pushed applications below their pre-pandemic average of about 220,000.
Unadjusted claims increased 18,187 to 258,622 last week amid a surge in Virginia, which offset declines in California, Kentucky and Missouri.
The report was published early because of the Thanksgiving holiday on Thursday. The data could become noisy over the holiday season. Claims have declined from a record high of 6.149 million in early April 2020, and are now in a zone viewed as consistent with a healthy labour market, though an acute shortage of labour caused by the pandemic is hindering faster job growth.
But there is hope for an increase in the labour pool. The number of people continuing to receive benefits after an initial week of aid dropped 60,000 to 2.049 million in the week ended Nov. 13, the claims report showed. That was the lowest level since the mid-March in 2020.
Employment growth has averaged 582,000 jobs per month this year. There were 10.4 million job openings as of the end of September. The workforce is down 3 million people from its pre-pandemic level, even as generous federal government-funded benefits have expired, schools have reopened for in-person learning and companies are raising wages.
The plunge in claims is consistent with data on retail sales and manufacturing production that have suggested the economy was regaining momentum in the fourth quarter after hitting a speed bump in the July-September period as coronavirus cases flared up over the summer and shortages became more widespread.
A separate report from the Commerce Department on Wednesday confirmed the sharp slowdown in growth in the third quarter. Gross domestic product increased at a 2.1% annualized rate, the government said in its second estimate of GDP growth for the period. That was still the slowest growth pace in more than a year but was revised slightly up from the 2.0% pace of expansion reported in October.
Economists had expected that third-quarter GDP growth would be raised to a 2.2% pace. The economy grew at a 6.7% rate in the second quarter. The slight upward revision reflected a more moderate pace of inventory drawdown than initially estimated, which offset a big step-down in consumer spending.
But that is all in the rear-view mirror. A third report from the Commerce Department showed orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.6% last month. Economists had forecast core capital goods orders climbing 0.5%.
Part of the increase last month likely reflected higher prices amid global shortages of goods. Business spending on equipment contracted in the third quarter after four straight quarters of double-digit growth.
It was weighed down by a shortage of motor vehicles. A global shortage of semiconductors is undercutting motor vehicle production. Consumer spending also appears to have regained speed in October, with retail sales surging last month as Americans kicked off their holiday shopping early to avoid shortages and paying even more for scarce goods.
(Reporting by Lucia Mutikani; Editing by Paul Simao, Chizu Nomiyama and Andrea Ricci)