Americans Are Returning to Work in Droves

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Fewer Americans are filing claims for unemployment benefits as the US economy adds back jobs lost during the Covid-19 pandemic
Fewer Americans are filing claims for unemployment benefits as the US economy adds back jobs lost during the Covid-19 pandemic

Americans are returning to work in droves, according to a report released by the U.S. Department of Labor on Wednesday.

Initial jobless claims declined to 199,000 in the week ending November 20 of 2021, from a revised 270,000 in the previous week. Meanwhile, the 4-week moving average of claims, an estimate of the trend, dropped to a new pandemic low of 252,025. 

Early in the month, the Bureau of Labor Statistics (BLS) reported that the economy created 531,000 new jobs in October, up from a revised 312,000 jobs in September, exceeding market forecasts of 450,000 jobs.

The BLS report is consistent with the ADP report, which showed that America’s private businesses hired 571,000 workers in October, up from 568,000 in September.

Meanwhile, the unemployment rate dropped in October to 4.6%, with long-term unemployed declining by 357,000 to 2.3 million.

Apparently, the labor market is gaining momentum, and that’s good news for the pace of the economic recovery. Creating additional jobs means more income, and higher income means more spending, which means higher growth and higher spending. That’s what economists call the “virtuous cycle” of growth.

But that doesn’t seem to be the case yet, based on the release of a BEA report, which showed that economic growth stalled. Real Gross Domestic Product, a measure of the nation’s output during a calendar year, rose at an annual rate of 2.1% in the third quarter of 2021, slightly below market expectations of 2.2% and well below the 6.7% gain in the second quarter. 

Still, the GDP growth slow-down may not be as bad as it looks, according to Robert R. Johnson, Professor of Finance, Heider College of Business, Creighton University.

“While at first glance, the GDP report appears disappointing, when you get behind the numbers it is much more positive than it appears,” says Johnson.

The decline in GDP growth from the second quarter can largely be attributed to the automobile sector. That sector was down due to the chip shortage. As soon as the supply chain bottlenecks are addressed, we should see a substantial increase in GDP growth in the fourth quarter.”

The BEA report takes a more broad view of the reasons behind the GDP slow-down.

“The deceleration in real GDP in the third quarter was led by a slow-down in consumer spending,” reads the BEA report. “A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. In the third quarter, government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased.”

But the decrease in government benefits will be more than made up by the resurgence in job growth, helping economic growth accelerate again.

On the one side, the prospect of higher economic growth is good news for Wall Street. It boosts the top and bottom lines of the listed companies that sell goods and services to households.

On the other side, the prospect of higher growth is bad news for Wall Street. It raises the possibility of higher inflation, forcing the Federal Reserve to accelerate tapering, the rolling back of Treasury bonds, and Mortgage-Backed Securities purchases, meaning higher long-term interest rates.

It may further prompt the Fed to move on with tightening, the raising of short-term interest rates. Thus, the increased volatility in Wednesday’s trade, which was exacerbated by low holiday volume.

While it is still unclear which types of news will prevail in the traders’ and investors’ minds, one thing is clear: volatility will continue on Wall Street.

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