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US Initial Claims Fall on Technical Factors

US Initial claims fell by 130,000 in the August 29 week to a level of 881,000, well below the 958,000 level expected and the lowest since the pandemic began, however, the decline needs to be taken with a grain of salt due to technical issues.

The Labor Department shifted to an additive seasonal factor from a multiplicative seasonal factor starting with this week’s data, which is meant to better reflect the unusual situation in 2020 and to keep the seasonally adjusted figure more closely tied the unadjusted raw total. The Labor Department did not retroactively adjust past data, so there is a break in the series this week and the week-over-week declines should be smaller going forward. Notably, though, the level is likely to remain below 1 million in most weeks.

The Labor Department did not mention any impacts from Hurricane Laura, which hit Texas and Louisiana last week. There could still be an impact in the claims released next week covering filings in the current week, offset by a shorter filing period due to the Monday holiday.

The four-week moving average for initial claims fell by 77,500 to 991,750 in the current week, a fifth straight decline and the lowest level since the pandemic began. Unadjusted claims rose by 7,591 in the current week after a decrease of 63,977 in the previous week. Seasonal adjustment factors expected a larger increase in the current week, leading to the decline in the seasonally adjusted figure.

The state data were mixed, with small gains in the hurricane-impacted areas of Texas and Louisiana. Further increases could come next week. The Labor Department reported that 759,482 workers filed under Federal Pandemic Unemployment Assistance on an unadjusted basis in the current week, up from 607,808 in the previous week.

The level of continuing claims fell by 1.238 million to 13.254 million in the August 22 week, the lowest since the start of the pandemic. The same seasonal adjustment issues that impacted initial claims pulled down continuing claims.

The Challenger monthly layoff report, released earlier on Thursday, showed 115,762 layoff plans in August after 262,649 in July, with 26,545 job cuts reported by the transportation sector. There were 53,480 job cuts in August 2019.

“The leading sector for job cuts last month was Transportation, as airlines begin to make staffing decisions in the wake of decreased travel and uncertain federal intervention,” Challenger senior vice president Andrew Challenger said.

There were 8,490 new cuts attributed directly to the pandemic and an additional 44,651 August layoffs due to market conditions. Challenger said that many firms that originally conducted temporary layoffs are making those job cuts permanent. At the same time, home schooling and concerns about COVID infection are making some workers reluctant to return to work.

Also released Thursday, the ISM services reading fell to 56.9 from 58.1 in July, slightly below the 57.1 reading expected and in contrast with the regional data and Markit estimates that increased. The report showed declines in the business activity and new orders readings, though both remained well above the break-even point. At the same time, both imports and exports expanded in month after contraction in previous months. The employment reading improved further in August but indicated contraction for the sixth straight month.

Released with claims, the international trade gap widened to $63.6 billion in July from $53.5 billion in June, the widest gap in over a decade and an indication that global trade picked further. While exports increased in the month, it was a surge in imports of vehicles, aircraft, and cell phones that drove the much wider trade gap.

Second quarter nonfarm productivity was revised up to a 10.1% increase from the preliminary 7.3% gain on an upward adjustment to the output decline offset by a much smaller upward revision to the decline in hours worked.

As a result of the faster productivity growth and a downward revision to compensation growth, unit labour costs were revised down to a 9.0% gain from the 12.2% increase reported in the advance estimate.

As with the GDP report, analysts have turned their attention to the third quarter which should show strong output growth offset by a rebound in hours worked.

Colin Lambert

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