Jobless Claims, Productivity Growth Dip

Thu Nov 4, 2004
By Alister Bull

WASHINGTON (Reuters) - Fewer Americans filed jobless claims last week and growth in worker productivity slowed sharply in the third quarter, government data showed on Thursday, hinting that conditions in the sluggish U.S. labor market have improved.

Financial markets took the data in stride, with the dollar and the benchmark U.S. 10-year Treasury bonds initially hovering ahead of the more important October employment report due out on Friday.

Subsequent moves in the currency were pinned on comments by the European Central Bank on inflation which lifted the euro against the dollar. Bond dealers said the impact of better jobs numbers was canceled out by unit labor costs data, which increased more moderately than had been expected.

First-time claims for state unemployment benefits shrank to 332,000 in the week ended Oct. 30 from 351,000 the previous week, the Labor Department said, though an official noted that part of the decline had been due to fewer hurricane-related claims in Florida.

Analysts polled by Reuters had forecast claims to fall more moderately, to 340,000.

"I think the latest decline by jobless claims supports the possibility of an improving labor market that will probably take the form of the addition of nearly 200,000 jobs to payrolls for the month of October," said John Lonski, chief economist at Moody's Investors Service.

A second report showed third quarter productivity growth slowing sharply to a 1.9 percent pace, faster than forecast but still half the previous month's 3.9 percent tally, while unit labor costs advanced at a moderate 1.6 percent rate.

Weaker productivity may be good news for the labor market if it means firms are running out of ways to squeeze existing workers into producing more and would now boost hiring.

MORE HOURS WORKED

Growth in non-farm business productivity, or worker output per hour, was the slowest since the fourth quarter of 2002 while hours worked grew at a rate of 2.1 percent, the fastest increase since the third quarter of 1999, as companies ran operations for longer to maintain output growth.

Wall Street analysts had expected productivity to slow to a 1.6 percent rate from a sharply revised 3.9 percent clip in the second quarter. That quarter had initially been reported with a 2.5 percent growth rate.

"It is fairly typical for productivity growth to be much stronger than can be sustained in the early stages of economic recovery and then to decelerate as the expansion matures," Morgan Stanley told clients in a note.

The faster pace of growth in labor costs compared with a revised 1.0 percent clip between April and June that had initially been posted as a 1.8 percent rate.

This could indicate limited inflationary pressure from wages that may help the Federal Reserve keep to a measured pace of interest rate rises at its next meeting on Nov. 10, where it is expected to lift borrowing costs to 2.0 from 1.75 percent.

Employment has been a weak spot for the American economy, which has grown strongly this year without creating much work.

Analysts expect the October employment report to show 169,000 new jobs were created after a tepid 96,000 gain in September, helped by hiring for hurricane cleanup. But that is still not enough to make a big difference to unemployment.

As well as lower initial jobless claims, the four-week moving average of filings, which smoothes out weekly fluctuations to provide a better picture of underlying trends, retreated by 1,500 to 342,000 from a revised 343,500. It had been originally reported at 343,250.

A Labor Department official said that part of the slide in weekly claims was due to a decline in Florida which he said was probably related to fewer people requesting jobless assistance in connection with worksite closures forced by the spate of hurricanes which battered the region in August and September.

"We are expecting an increase in (October) payrolls of 140,000 with risks predominantly to the upside," Bank of America economist Gary Bigg said in a commentary.

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