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Productivity Increase as the U.S. Economy Returns to Growth, While Jobless Claims Continue to Fall

Thu, Nov 5 2009, 14:03 GMT
by ecPulse.com analysis team

ecPulse.com

The U.S. economy continues to show further signs of improvement, as seemingly the U.S. economy continues to show more signs of recovery from the worst recession since WWII, while the labor market continues to show signs of easing contraction, though unemployment is still expected to continue rising over the upcoming few months.

The U.S. Labor Department released the initial jobless claims for the week ending October 30, whereas jobless claims dropped by 20,000 to 512,000 from the prior revised estimate of 532,000, while continuing claims dropped as well to 5.749 million from the prior revised estimate of 5.817 million.

The U.S. labor market is still suffering, as companies continue to layoff workers, however the pace of contraction in the labor market has been easing recently, as condition started to improve, yet tomorrow’s jobs report is still expected to show that unemployment rose to a new 26year high at 9.9%, which means further misery onto consumers.

Consumers are still under pressure from rising unemployment as well as tightened credit conditions and subdued income growth, as all continue to weigh down on spending, which accounts for almost 2/3 of economic activity in the United States, and we shouldn’t expect a strong rebound in spending before unemployment starts to drop.

Meanwhile, the U.S. also released the preliminary estimate for the non-farm productivity during the third quarter of this year, whereas non-farm productivity rose by 9.5% well above expectations of 6.5% and following the prior revised rise of 6.9%, productivity rose as the U.S. economy returned back to growth during the third quarter. The U.S. economy grew by 3.5% during the third quarter on the back of the huge governmental aid as well as the recent improve in economic conditions.

Meanwhile, unit labor costs dropped by 5.2% over the same period following the prior revised drop of 6.1% and worse than median estimates of a 4.2% drop, where it seems that wage pressures are still subdued, as companies continue to layoff workers, and accordingly the outlook for inflation remains subdued at least over the short term.

The Federal Reserve Bank made it clear once again that interest rates will remain at “exceptionally low” levels in order to boost economic growth, as though economic activity is picking up, yet the economy is still weak, and according to the Feds’ projections, inflation will remain subdued for a while as a result of this economic weakness, and since the long term inflation expectations are still stable.

The outlook for inflation over the long term though represents a huge threat, as the huge increase in money supply due to the hefty amounts of liquidity that were pumped into the financial system will probably lead inflation rates to soar, however, the current weakness in economic activity has been restraining such a rise, as the velocity of money is still somehow weak.

Meanwhile, Canada released the building permits index for the month of September, building permits rose by 1.6% inline with median estimates and following the prior reported rise of 7.4% back in August, as it seems that the Canadian housing market is also gaining some momentum and is on course to recovery inline with the recent developments in economic activity in Canada.

Yet the Canadian economy still has a long way to go according to the Bank of Canada’s projections, as the BOC expects the economy to be able to grow over a strong pace during 2011, and that means that the Canadian economy will continue to recover the aftermath of the worst recession since WWII and that 2010 will be a recovery year as well.

Published on  Thu, Nov 5 2009, 14:04 GMT