The latest indication that the economy was picking up steam as the year came to an end was the slight increase in the number of Americans submitting new claims for unemployment benefits last week.
The Labour Department released statistics on Thursday that showed retail sales surprisingly increased in November, while single-family home starts and construction permits reached 1-1/2-year highs. This was followed by a smaller-than-expected increase in weekly unemployment claims. Economists increased their growth projections for the fourth quarter in response to such data.
At the beginning of the quarter, the economy seemed to be on the verge of stagnating. Further statistics released on Thursday indicated that far more progress had been achieved than previously thought in bringing inflation back to the Federal Reserve’s 2% objective in the third quarter.
The economy is doing rather well, and as the Federal Reserve eases policy measures now that inflation is in line with their goals, things could become even better in the coming year, according to Christopher Rupkey, chief economist at FWDBONDS in New York.
For the week ending December 16, the number of first claims for state unemployment benefits rose by 2,000, to a seasonally adjusted 205,000. Reuters polled economists, who predicted 215,000 claims for the most recent week. Unadjusted claims decreased last week by 9,225 to 239,865, largely due to substantial decreases in Georgia and California offsetting a notable increase in Ohio.
Despite the fact that the claims figures fluctuate throughout this time of year due to holidays, they generally indicate a somewhat stable labour market.
This is anticipated to prevent a recession in the economy the following year. According to a Conference Board study released on Wednesday, the percentage of consumers who said that jobs were plentiful in December reached its highest level in five months.
The week that the government polled companies for the nonfarm payrolls section of December’s jobs report was included in the claims data. Between the survey periods of November and December, claims decreased somewhat.
November saw an increase in employment of 199,000, which was higher than the 150,000 jobs gained in October but less than the monthly average of 240,000 during the previous year.
The Federal Reserve maintained its interest rate policy this week, and in fresh economic forecasts, officials hinted that the historic tightening of monetary policy that has been implemented over the last two years is coming to an end and that lower borrowing costs will be arriving in 2024. The U.S. central bank raised its policy rate by 525 basis points to the current range of 5.25%–5.50% since March 2022.
Wall Street stocks were rising in value. In relation to a currency basket, the dollar declined. Bond rates in the US increased.
underlying power
Next week’s data on the number of recipients of benefits following an initial week of aid—a proxy for hiring—may provide more insight into the state of the labour market in December. During the week that ended, the so-called continuing claims decreased by 1,000 to 1.865 million.
Since mid-September, continuing claims have primarily grown; this trend has been attributed to challenges correcting the data for seasonal variations following an extraordinary spike in benefit files during the early stages of the COVID-19 epidemic.
When the government updates the statistics the next year, economists anticipate that the distortion will be lessened. The robustness of the labour market supports the economy.
The government verified that the third quarter saw an acceleration in economic growth in a different report. The Bureau of Economic Analysis (BEA) of the Commerce Department released its third estimate of third-quarter GDP, which showed that the GDP grew at an annualised rate of 4.9% last quarter—a revision down from the previously reported 5.2% pace.
Even so, it was the quickest rate of growth since 2021’s fourth quarter. The GDP growth rate was predicted by economists to stay unchanged.
The economy has been growing far faster than what Fed officials consider to be the non-inflationary growth rate, which is estimated to be 1.8%. The economy grew at a rate of 2.1% in the second quarter. The previous quarter’s revised negative GDP growth estimate was a result of lower consumer expenditure and inventory investment.
Consumer spending growth, which makes up over two thirds of the U.S. economy, was revised down from the originally projected 3.6% pace to a still absurd 3.1% rate. That was mostly brought about by a reduction in the amount spent on foreign travel.
The rate of inflation was lower than originally reported. The third quarter had the lowest increase since the fourth quarter of 2020 in the personal consumption expenditures (PCE) price index, which is adjusted downwardly to exclude the volatile food and energy components. The index increased by 2.0%. It was earlier reported that the so-called core PCE price index climbed at a pace of 2.3%.
“Considering that core inflation was at 6% annualised in early 2022, this is remarkable progress,” said Gus Faucher, chief economist at Pittsburgh, Pennsylvania-based PNC Financial.
The pace of growth in private inventory investment was reduced from the previously announced rate of $83.9 billion to $77.8 billion, mostly due to stock downgrades at general merchandise and other retail establishments.
Third-quarter profits from current production grew to $108.7 billion, up $3.0 billion over the first projection. High earnings are encouraging for the long-term viability of the economic growth.
The fourth quarter’s growth rate is predicted to be as low as 1.1% and as high as 2.7%. A larger trade deficit and a slower rate of inventory buildup than in the third quarter are predicted to limit growth this quarter.
Risks still exist, though, because production is still having trouble. The Mid-Atlantic region’s manufacturing activity shrank even further in December, according to the Philadelphia Fed. Although at a slower rate, the Conference Board’s leading indicator continued to decrease in November.