 "Dynamic Capital")
Surpassing expectations, the number of Americans filing for unemployment last week feel significantly – nearing a 43-year low – while the labor market continues to tighten, providing an environment that could go on to apply upward pressure on wage growth. Additional positive economic news included surging wholesaler inventories for December showing the most month over month growth in over 5 years, indicating business has confidence that domestic demand will continue its upward trend. The claims for unemployment last week feel to 234,000, leaving it 1000 shy of the previous low that was briefly touched in November and marking the 101st week in a row it has remained below 300,000, the longest stretch since the 1970s when the total population was much smaller.
Layoffs continue to fall, leaving the impression that companies sense the tight labor market and want to hold onto their workers to ensure demand is completely satisfied. After US Treasury yields were pushed lower by political instability yesterday, they bounced back strongly today as treasury bonds were sold off so investors could retreat to the stock market to enjoy accelerated growth of their capital. The US Dollar also continued strengthening, as it grew against a basket of the major currencies. Non-farm payroll report numbers showed the economy creating 227,000 jobs in January, and there has been little growth in average wages over the past few months.
Without sustained wage growth, it might be hard for the economy to grow as consumers won’t have more money to invest into the economy and employment is already at nearly its max rate. Many analysts are interpreting the latest labor reports as upbeat signals about conditions in the job market. The four-week moving average of unemployment claims (largely accepted as the more comprehensive indicator of jobless claims when compared to raw weekly numbers) is also at its lowest point since the early 1970s. The commerce department also released a report showing a 1% jump in wholesale inventories in both November and December, likely meaning we will begin to see growth level out in the months ahead.
Inventory investment has now had two back to back quarters where it contributed to economic growth, before which it had been a drag on GDP growth since the second quarter of 2015. Sales at wholesalers jumped a whopping 2.6% in December, the largest such increase in about six years. If December’s sales pace was to hold steady, it would take wholesalers 1.29 months to clear their shelves, which is about in line with the average over the last few years. This provides us further proof that when combined with decreased total savings, and increased total credit, and a tightening labor market, this means wage growth and/or increasing exports will be needed to continue growing the economy.