Bullish Initial Claims Trend Signals Robust U.S. Economic Health

Highlights

• Initial jobless claims fall to 216,000.
• Insured unemployment rate drops to 1.1%.
• Nonfarm business productivity rises 3.5% in Q2.

Weekly Jobless Claims Decline

For the week concluding on September 2, seasonally adjusted initial jobless claims clocked in at 216,000, exhibiting a drop of 13,000 from the prior week’s updated figure. This previous figure experienced a 1,000 upward revision, from 228,000 to 229,000. Meanwhile, the 4-week moving average stands at 229,250, decreasing 8,500 from the former week’s revised metric, which was bumped up slightly by 250 to 237,750.

Insured Unemployment Rate Update

The advance seasonally adjusted insured unemployment rate for the week ending August 26 was recorded at 1.1%, a 0.1 percentage point decline from the preceding week’s unaltered rate. The subsequent data showcases 1,679,000 insured unemployed individuals during the same week, marking a 40,000 drop from the week before. This latter figure was amended downwards by 6,000, adjusting from 1,725,000 to 1,719,000. When examining the 4-week moving average, the numbers descended to 1,701,500, indicating a 1,250 decline from the last week’s updated average, which was revised down by 1,500 to stand at 1,702,750.

Short-Term Outlook:  Robust Employment Sector

The labor market exhibits a bullish trend, with a consistent drop in both initial jobless claims and the insured unemployment rate. This points to an increasingly robust employment sector, signaling overall economic health.

US Labor Productivity in Focus

In Q2 2023, the U.S. Bureau of Labor Statistics reported a 3.5% rise in nonfarm business sector labor productivity, marking a slight 0.2% revision downward from initial estimates. This change emerged from a 1.9% increase in output and a 1.5% decrease in hours worked—the first such decline since Q2 2020. Meanwhile, year-over-year figures reveal a steady 1.3% boost in productivity, signaling the first upturn since the end of 2021.

Understanding Unit Labor Costs

Unit labor costs in the nonfarm business sector rose by 2.2%, fueled by a 5.7% surge in hourly compensation coupled with the aforementioned productivity spike. Over a year, these costs saw a 2.5% jump. Real hourly compensation, adjusted for consumer prices, increased by 2.9% for Q2 but slid by 0.3% when assessed annually.

Manufacturing Sector Dynamics

Q2 saw a 2.9% spike in labor productivity within the manufacturing realm. Dissecting this further, durable manufacturing exhibited a 4.5% productivity upsurge, with nondurable manufacturing trailing slightly at 2.0%. Contrarily, when juxtaposed with the same period the previous year, total manufacturing sector productivity dipped by 1.3%. Unit labor costs in this sector experienced a 4.9% ascent, prompted by an 8.0% increase in hourly compensation and a 2.9% productivity enhancement.

Corporate Sector & Revisions

The nonfinancial corporate sector in Q2 2023 reported a 3.7% rise in productivity. Simultaneously, output accelerated by 2.8%, with hours worked decreasing by 0.8%. However, the past year paints a different picture, with productivity receding by 0.6%—the first time in six quarters. Key revisions for Q2 2023 spotlighted a 3.5% increase in nonfarm business sector productivity—a 0.2% drop from preliminary figures.

Short-Term Outlook: Upward Trajectory

Given the current trajectory, especially within the nonfarm and manufacturing sectors, market sentiment skews bullish. Yet, as the Federal Reserve gauges inflationary pressures, it’s paramount to remain vigilant. For deeper insights, the next productivity and costs release is slated for November 2, 2023.