US Labor Market Solid; Manufacturing Sector Slowing
The number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to still strong labor market conditions, though the pace of job growth has slowed after last year’s robust gains.
Other data on Thursday showed a measure of factory activity in the mid-Atlantic region rebounding sharply this month after falling into negative territory in February for the first time in more than 2-1/2 years. But manufacturers’ perceptions about the outlook were the least favorable in three years and their expectations for capital spending were also less upbeat.
These findings support the view that the manufacturing sector is slowing in line with softening economic growth.
The Federal Reserve held interest rates steady on Wednesday and its policymakers abandoned projections for further rate increases this year, noting that “growth of economic activity has slowed from its solid rate in the fourth quarter.”
“The U.S. economy has clearly slowed and will cause job growth to moderate, which isn’t alarming as long as it is orderly,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 221,000 for the week ended March 16, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims falling to 225,000 in the latest week. Claims have been drifting in the middle of their 200,000-253,000 range this year.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 1,000 to 225,000 last week.
The claims data covered the survey week for the nonfarm payrolls portion of March’s employment. The four-week average of claims fell 11,000 between the February and March survey periods, suggesting a pickup in job growth after hiring almost stalled last month.
Nonfarm payrolls increased by only 20,000 jobs in February, the fewest since September 2017. The slowdown followed big gains in December and January. Average job growth has moderated to about 165,500 per month from 223,250 per month in 2018.
Despite the slowdown in employment growth, the labor market remains solid. The unemployment rate is at 3.8 percent and annual wage growth in February was the strongest since 2009.
The step-down in hiring reflects a shortage of workers and softening economic growth as the stimulus from a $1.5 trillion tax cut package fades. A trade war between the United States and China, slowing global growth and uncertainty over Britain’s exit from the European Union are also hurting domestic activity.
The slow growth theme was also underscored by another report on Thursday from the Conference Board showing its leading economic index, which measures future U.S. economic activity, rose in February for the first time in five months.
February’s 0.2 percent increase in the leading indicator followed an unchanged reading in January.
The leading indicator’s growth rate has slowed in the past six months, which the Conference Board said suggested “that while the economy will continue to expand in the near-term, its pace of growth could decelerate by year end.”
Gross domestic product estimates for the first quarter are as low as a 0.4 percent annualized rate. The economy grew at a 2.6 percent pace in the fourth quarter.
The dollar firmed against a basket of currencies while stocks on Wall Street rose. U.S. Treasury prices were generally higher.
In a third report on Thursday, the Philadelphia Fed said its business conditions index jumped to 13.7 in March from -4.1 in February, which was the first negative reading since May 2016.
But the survey’s measure of new orders received by factories in the region, which covers eastern Pennsylvania, southern New Jersey and Delaware, rebounded moderately from negative territory in February and unsold goods piled up.
In addition, the survey’s six-month business conditions index dropped to a reading of 21.8 this month, the lowest since February 2016, from 31.3 in February. Its six-month capital expenditures index fell to a reading of 19.5 in March from 31.7 in the prior month. The index dropped below 20 for the first time since 2016.
“The details within the report were much more of a mixed bag, and more downbeat than one might think given the solid improvement in the headline reading,” said Daniel Silver, an economist at JPMorgan in New York.
These readings are in line with other surveys showing signs of slowing national factory activity. A report from the New York Fed last week showed a gauge of factory activity in New York state dropped to a two-year low in March.
The Philadelphia Fed survey also showed more factories experiencing difficulty finding workers, which could weigh on production in the future. Nearly 74 percent of the firms reported labor shortages, up from 63.8 percent last year.
Just over half of the companies also reported they had positions that have remained vacant for more than 90 days. That compared to 47.8 percent in 2018.