By Kathleen Madigan
April is turning out to be the cruelest month for jobless claims.
New filings for jobless benefits unexpectedly jumped 25,000 in the April 23 week. The increase could hint that businesses are cutting labor costs to offset the prolonged surge in raw-material costs. But the strength of the U.S. recovery — which slowed in the first quarter — is highly dependent on stronger job growth.
New filings for jobless benefits were in a steady decline since August. But after falling to as low as 385,000 in the April 2 week, they have taken a turn in the wrong direction. New claims have been above 400,000 for three weeks in a row.
Two reasons partly explain the unexpected jump in the latest week. First, the Japan tragedy has slowed parts shipments leading to the shutdown of some U.S. auto plants. Second, the week included Good Friday when some businesses were closed.
Even so, the four-week moving average, which smooths out weekly volatility, stands at its highest since mid-February. That hints something less temporary is lifting claims.
What if claims are rising because some businesses are trying to offset their higher bills for materials and energy by paring their biggest expense: labor?
Although factory surveys and earnings reports have indicated many businesses have already or are planning to raise their selling prices, the increases may not be enough to cover soaring commodity costs. Companies then will look at other costs. That means payrolls.
Post-recession, companies have been very successful at holding down labor costs. Friday’s report on employment costs is expected to show compensation up only 0.5% in the first quarter, or about 1.8% from a year ago. During the last expansion, labor costs frequently grew close to a 4% pace, on a yearly basis.
To be sure, the rise in job openings shows many businesses are adding staff. Those new hires, though, are being offset by the unexpected rise in layoffs. The end result could be slower payroll gains and weaker income growth going forward.
If so, consumer spending may not accelerate from its modest first-quarter pace. Real consumer spending rose at an 2.7% annual rate last quarter, down from 4.0% in the fourth quarter.
Overall, real gross domestic product grew just 1.8%. The slowdown from the fourth quarter’s 3.1% pace was expected, in part because extreme winter weather curtailed some activity last quarter.
Even so, demand was very weak last quarter. Real final sales — GDP minus inventories — rose just 0.8% last quarter after surging by 6.7% in the fourth.
A reacceleration in demand needs stronger labor markets. The jump in new filings hints that the labor markets may not be healing as quickly as economists expect or job seekers want.
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