US weekly jobless claims at 16-month low; shortages hamper manufacturing

WASHINGTON, July 15 (Reuters) – The number of Americans filing new jobless claims fell to its lowest level in 16 months last week as the labor market gains ground, but labor shortages labor and supply chain bottlenecks frustrate companies’ efforts to grow. production to meet a high demand for goods and services.

Manufacturing output fell in June as motor vehicle assembly collapsed amid a relentless global shortage of semiconductor chips, other data showed Thursday. The imbalance between supply and demand as the economy emerges from the COVID-19 pandemic is fueling inflation, with prices expected to remain high in the coming months before moderating.

Federal Reserve Chairman Jerome Powell told lawmakers on Thursday he expected the shortages and high inflation to ease over time.

“The problem continues to be the supply of component inputs and skilled workers that remain scarce, but there is evidence that the stalemate is starting to break,” said Tim Quinlan, senior economist at Wells Fargo in Charlotte, in North Carolina.

Initial claims for state unemployment benefits fell from 26,000 to 360,000 seasonally adjusted for the week ended July 10, the lowest level since mid-March in 2020, the Labor Department said. Data for the previous week has been revised to show 13,000 more claims than previously reported.

Economists polled by Reuters had forecast 360,000 candidates for last week. Claims have struggled to progress since they fell below 400,000 in late May, even as at least 20 states led by Republican governors withdrew from federally funded unemployment programs.

Unemployed people are required to file claims under regular state programs to determine eligibility for federal benefits. The early termination of federal programs follows complaints from companies that benefits, including a weekly check for $ 300, encouraged unemployed Americans to stay home. The economy is experiencing a shortage of workers, with a record 9.2 million job vacancies at the end of May.

About 9.5 million people are officially unemployed. The disconnect has also been blamed on the lack of affordable child care, fears of contracting the coronavirus, and career changes and pensions linked to the pandemic.

The evidence is mixed as to whether the early termination of federal benefits, which began on June 12 and will run until July 31, encourages job search. Extended benefits will expire on September 6 for the rest of the country.

The number of people continuing to receive benefits after a first week of assistance fell from 126,000 to 3.241 million in the week ending July 3. Texas and Georgia accounted for the bulk of the decline in these so-called continuing demands, which are reported one-week lag.

“Claims in these two states, where additional benefits ended on June 26, have fallen to their lowest level since March 2020, suggesting that the early termination of benefits may encourage some people to return to work,” he said. said Nancy Vanden Houten, chief US economist. at Oxford Economics in New York.

Florida and South Carolina, which also prematurely ended federal benefits, reported sharp increases in continuing claims. Some states that did not terminate expanded benefits prematurely have also seen a decline in the number of people out of work.

At the end of June, at least 13.8 million people were collecting unemployment checks under all programs.

Wall Street stocks were mostly trading lower. The dollar appreciated against a basket of currencies. US Treasury yields have fallen.

SUPPLY CONSTRAINTS

In a separate report released Thursday, the Fed said manufacturing output fell 0.1% in June after accelerating 0.9% in May. It was pulled down by a 6.6% drop in output at auto factories. The global chip shortage is forcing automakers to adjust production schedules. Read more

General Motors (GM.N) announced Thursday that its assembly plant in Lansing Delta Township, Mich. And its assembly plant in Spring Hill, Tennessee will take downtime from July 19 to 26.

Cuts in auto production have boosted demand for used cars and trucks, the main driver of consumer inflation in recent months.

Still, the manufacturing sector, which accounts for 11.9% of the US economy, grew at an annualized rate of 3.7% in the second quarter after growing at a 2.3% pace during the January- March. Demand has been fueled by COVID-19 vaccinations, low interest rates and nearly $ 6 trillion in government assistance since the pandemic began in the United States in March 2020.

Although vaccinations increase spending on travel-related services and restaurant meals, among other activities, demand for goods remains strong and inventories are extremely low, which should keep manufacturing strong.

A third New York Fed report showed its measure of factory activity in New York state jumped in July, with new orders and shipments rising sharply. Read more

While a fourth report from the Philadelphia Fed showed a drop this month in its manufacturing tonnage in the region that covers factories in eastern Pennsylvania, southern New Jersey and Delaware, activity continued to grow at a steady pace. Read more

“Anecdotal indications suggest that the supply issues may start to be resolved later this year and into 2022,” said Veronica Clark, economist at Citigroup in New York. “As long as demand indications remain strong, we expect production to remain strong through 2022 as supply issues will eventually ease.”

Mitigation of bottlenecks should ease some of the inflationary pressure. In a fifth report, the Labor Department said import prices rose 1.0% in June after jumping 1.4% in May. During the 12 months ending in June, import prices rose 11.2% from 11.6% in May. Read more

The government announced this week that consumer prices rose the most in 13 years in June, while producer prices accelerated. Read more

“The United States is experiencing cost inflation, which has historically been shown to be more temporary than other causes of inflation, primarily pulling demand,” said Ryan Sweet, senior economist at Moody’s Analytics at West Chester, Pennsylvania.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

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