U.S. Labour Market Remains Stable as Worker Productivity Accelerates

  • The number of Americans filing new claims for unemployment benefits rose slightly by 1,000 to 199,000 in the week ended August 1, remaining below economists' expectations of 202,000. Meanwhile, planned layoffs fell 27% to 33,429 in July, the lowest level in two years, consistent with a stable labour market.
  • Claims have fallen considerably since surging in early June and remain near the lower end of this year's range. Layoffs have also remained low despite the oil price shock from the U.S.-Israeli war with Iran. There were no signs of widespread job losses linked to the AI buildout, with announced layoffs down 46% from a year ago and 41% lower year-to-date.
  • Continuing claims, a proxy for hiring, increased by 24,000 to 1.801 million, while economists expect nonfarm payrolls to increase by 80,000 jobs in July, following a gain of 57,000 in June. The unemployment rate is forecast to remain unchanged at 4.2%, although weaker consumer perceptions of job availability suggest some downside risk.
  • Worker productivity increased at an annualised rate of 1.4% in the second quarter, well above economists' expectations of 0.6%, while unit labour costs rose 1.3%, below the 2.1% forecast. Economists said stronger productivity, partly supported by businesses adopting artificial intelligence, helped contain labour cost pressures.
  • Despite the favourable productivity data, economists noted that unit non-labour payments surged 14.0%, the fastest pace in four years, suggesting inflation pressures remain beyond labour costs alone. The Federal Reserve is therefore expected to remain focused on inflation, with some economists still anticipating an interest rate increase next month if price pressures do not ease.
  • The combination of a stable labour market, faster productivity growth and contained labour costs gives the Federal Reserve greater room to focus on inflation risks stemming from the Middle East conflict. However, economists cautioned that stronger productivity alone will not be sufficient to return inflation to the Fed's 2% target while non-labour costs continue to rise.

(Source: Reuters)