New unemployment insurance claims dipped slightly last week, but lingering layoffs and market tepidness at the start of the year have put downward pressure on job seekers.
Initial claims for state unemployment benefits fell 0.4% to a seasonally adjusted 284,000 for the week ended Sept. 12, according to data released by the U.S. Labor Department on Monday. But both figures fell short of economists’ expectations for an increase of 340,000 claims.
Separately, companies reported adding 195,000 new nonfarm payrolls last month, down from a revised 255,000 in August, according to a separate Labor Department report. However, analysts had expected payrolls to rise 225,000 during the month.
Total nonfarm payrolls added a more-than-expected 236,000 new jobs in August, while the unemployment rate inched up to 4.9% from 4.8% in July.
The figures show that hiring remained healthy throughout the reporting period, despite the still-fragile economy at the end of 2018.
Market workers were lured by higher paychecks for the month of August, with average hourly earnings rising 0.3% to $25.05.
And payroll gains continued into the first few months of this year. In July, the nonfarm payrolls average rose more than 200,000.
Despite steady job gains, firms appear willing to take on heavy workers, even with the U.S. economy on shaky ground in the first half of the year. Yet they still remain cautious about how effective the payroll tax cut and other stimulative tax legislation enacted in late 2017 will be at controlling inflation.
The Labor Department has estimated that the Federal Reserve will slow its rate of recovery by 1.75 percentage points to 2.25 percentage points a year over the course of the coming three years. Economists polled by The Wall Street Journal expect a similar percentage rate reduction in 2021.
Firms can begin cutting payrolls around the same time that inflation kicks in to moderate, which occurred in early 2017. This is known as the “1-2-3-4,” as it presages businesses cutting jobs when prices start to rise and they decide to roll them off.
Retailers typically respond to inflation when it’s rising much more quickly than other sectors. Services groups and manufacturers, however, did not have much to worry about in August.
They responded to modest employment growth and generally expected the Fed to stay on hold on interest rates.
The near-record-low cost of borrowing for long-term borrowing now appears to have had a big impact on inflation that hasn’t yet had a big impact on prices.
“If you’ve got 5% inflation, you’ve got to do something with it. We don’t have a lot of businesses that can make money off of inflation,” Thomas Simons, money-market economist at Jefferies LLC, said recently.
The labor-market recovery started in the Great Recession, but the Federal Reserve has put off interest-rate hikes before raising rates, partly because of efforts by Fed Chair Janet Yellen to try to overcome inflationary pressures.