In many ways, Hurricanes Harvey and Irma were devastating to the impacted areas. The full economic toll remains to be seen, but if today’s report on jobless claims is any indication, the disruption to the regional economy may not be as severe as many had feared.
Economists were expecting first-time jobless claims to rise in the week ended September 16, breaching the 300,000 threshold and breaking a historic string of 132 consecutive weeks of sub-300,000 results. Instead, claims fell sharply to 259,000 from 282,000 the prior week, extending that streak to 133 weeks, the longest since the early 1970s, when the labor market was considerably smaller.
The four-week moving average of jobless claims continued to climb, reaching 268,750, but is poised to reverse course in the coming weeks. Even with the temporary surge largely driven by the sharp increase in claims in Texas in the aftermath of Harvey, jobless claims at the national level remain relatively low (well below the long-term average of 310,000) and consistent with solid labor market conditions and a growing economy.
Initial claims have historically been a leading indicator for the health of the labor market in particular, but the economy as a whole as well. Generally, a sustained increase of 50,000 in claims points to a deteriorating jobs market. The recent surge – already receding – was clearly a direct result of the exogenous disruption of natural disaster and not reflective of a broad slowdown in the economy.
Even as jobless claims remain low, the number of job openings continues to rise as employers are facing a mismatch in hiring needs and qualified candidates. As labor market conditions tighten and the competition for skilled workers heats up, employers will likely be forced to sweeten compensation and benefits to attract and retain talent.
Yesterday’s FOMC meeting announcement marked the end of the Fed’s long-standing repurchase policy. The Fed announced that, starting in October, it will begin the process of gradually reducing the size of the central bank’s balance sheet. As the Fed continues down the path of tightening rates, there are many questions about the scope of the impact on bond yields and the capital markets. Further, even with lower than target inflation, the FOMC seemingly left the door open for a rate hike in the coming months as employment conditions remain robust and inflation expectations appear favorable. The change in policy was very much anticipated, so the near-term impact may be limited. Either way, it’s another vote of confidence in the strength of the economy on the part of the nation’s central bank.
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