Jobless Claims Fall to Lowest Level Since 2000

Surprising economists and investors who expected deflation and constrained growth from falling oil prices, unemployment claims cratered to their lowest level in nearly a generation.

Unemployment claims fell to 264,000, down 8% from the prior week’s level, which remained unrevised. The Department of Labor reported that unemployment claims fell far below expectations, bringing the four-week average of unemployment claims to 283,500, the lowest level since June 2000.

Surprising economists and investors who expected deflation and constrained growth from falling oil prices, unemployment claims cratered to their lowest level in nearly a generation.

Unemployment claims fell to 264,000, down 8% from the prior week’s level, which remained unrevised. The Department of Labor reported that unemployment claims fell far below expectations, bringing the four-week average of unemployment claims to 283,500, the lowest level since June 2000.

While unemployment claims have steadily fallen in 2014, analysts were expecting unemployment claims to rise to 290,000, but the results suggest that layoffs and firings are slowing as the labor market rebounds from a bottom. Some analysts predicted a substantial acceleration in unemployment claims in the short term, as declining energy consumption and a glut of reserves discourage further utility investment that could discourage hiring in utilities and related sectors.

Productivity Gains, Energy Output Falls

While unemployment claims are down, industrial production has risen. A new Federal Reserve report titled Industrial Production and Capacity Utilization showed a 1.0% increase in industrial production in September, with productivity rising to an annual rate of 3.2% for the third quarter of the year. This indicates that productivity gains are roughly stable, rising at a similar rate as the U.S. economy has seen every year since 2010. Manufacturing output rose 0.5% and mining output rose 1.8%.

Crucially, utility productivity rose 3.8% in September but utility output fell 8.5% annualized in the third quarter, the second quarterly decline sequentially in 2014 amidst falling energy prices. 

Economists worry that a continued decline in commodity prices and a supply glut could cause utility output to fall further, which could cause deflationary shockwaves throughout the economy.

Equities Rebound on Cheap Gas

While deflationary concerns have caused U.S. Treasury yields to collapse, with the 10-year U.S. Treasury dipping below 1.8% in intraday trading at its lowest point, equities also saw steep declines in what some traders said was the beginning of a bear market.

In early morning trading Thursday, traders had a change of heart, as speculation that falling gas prices could cause greater aggregate demand and allow discretionary consumer spending to rise. Consumer spending has been constrained since 2008 as falling real wages and falling labor participation caused less Americans to buy goods and services, keeping sales growth tepid in the so-called “new normal” economy.

If consumer demand continues to grow, capacity utilization could rise accordingly. Currently, the rate remains below historical averages at 79.3% in September, but up 0.6% from the prior reading.

In a recent report, the Federal Reserve said that it expects a steady pace of economic growth on improving labor market conditions and renewed spending power from American consumers. In the Fed Beige Book released earlier this week, the Federal Reserve said that its districts witnessed “modest to moderate economic growth at a pace similar to that noted in the previous Beige Book.” The report noted mixed real estate activity, with commercial construction growing as a sign that business-owners are anticipating greater demand for goods and services in the near term.