Make Kitco Your Homepage

U.S. labor market slowing; manufacturing mired in weakness

Kitco News

WASHINGTON (Reuters) - The number of Americans filing applications for unemployment benefits was unexpectedly unchanged at a five-month high last week, suggesting some softening in the labor market.

While other data on Thursday showed a mild pick up in factory activity in the mid-Atlantic region this month, manufacturers reported a sharp slowdown in new orders, shipments and unfilled orders. There were also declines in factory employment and hours measures.

The persistent weakness in manufacturing is despite an easing in tensions in the 16-month trade war between the United States and China, which has depressed capital expenditure.

The reports added to last week’s downbeat October retail sales and manufacturing production data in suggesting the economy lost momentum early in the fourth quarter.

The Federal Reserve last month cut interest rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.

Initial claims for state unemployment benefits were flat at a seasonally adjusted 227,000 for the week ended Nov. 16, the highest level since June 22, the Labor Department said. Data for the prior week was revised to show 2,000 more claims received than previously reported.

Economists polled by Reuters had forecast claims decreasing to 219,000 in the latest week. The Labor Department said only claims for Pennsylvania were estimated last week.

The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 3,500 to 221,000 last week.

U.S. financial markets were little moved by the data.

CAPITAL EXPENDITURE WEAK

The claims data covered the week that the government surveyed establishments for the nonfarm payrolls component of November’s employment report. The four-week average of claims rose 5,250 between the October and November survey weeks.

While that would suggest little change in job gains this month, employment growth will be boosted by the return to payrolls of about 46,000 workers at General Motors (GM.N).

The 40-day strike at the automaker’s plants in Michigan and Kentucky contributed to holding back payrolls gains to 128,000 jobs in October. Job growth has slowed this year, averaging 167,000 per month compared with an average monthly gain of 223,000 in 2018, in part because of the U.S.-China trade spat, ebbing demand and a shortage of workers.

Minutes of the Fed’s Oct. 29-30 policy meeting published on Wednesday showed that while officials at the U.S. central bank viewed labor market conditions as remaining strong, they also acknowledged the slowdown in the pace of job gains.

Policymakers attributed the moderation in hiring to worker shortages and also viewed it as “indicative of some cooling in labor demand,” in line with recent declines in job vacancies.

Troubles for manufacturing, which accounts for 11% of the economy, have persisted into the fourth quarter, despite the ebb in the trade tensions between Washington and Beijing.

In a separate report on Thursday, the Philadelphia Fed said its business conditions index rose to 10.4 in November from 5.6 in October. But the survey’s measures of new orders, employment and shipments declined, pointing to underlying weakness in manufacturing in the region that covers eastern Pennsylvania, southern New Jersey and Delaware.

The Philadelphia Fed survey’s six-month business conditions index rose to 35.8 this month from 33.8 in October. But its six-month capital expenditures index tumbled to 19.4 from a reading of 36.4 in the prior month

A survey from the New York Fed last Friday showed a drop in its business conditions index this month and manufacturers remained pessimistic about conditions over the next six months.

Manufacturing is also being undercut by an inventory overhang, especially in the automobile sector, design problems at Boeing (BA.N) and slowing global growth. The Fed reported last week that output at factories tumbled 0.6% in October, the most since May 2018, after dropping 0.5% in September.

An 11.1% plunge in motor vehicle production because of the GM strike depressed on output. Excluding auto production, manufacturing output slipped 0.1% last month.

The Fed minutes on Wednesday showed policymakers believed conditions for manufacturing “were unlikely to improve materially over the near term,” citing “continuing concerns about global growth and trade uncertainty.”

Reporting By Lucia Mutikani; Editing by Andrea Ricci and Chizu Nomiyama

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.