The Week in Review: Jobless Claims, GDP Projections, Inflation

The week yielded a mixed bag of economic data indicating some strength in America’s recovery.  A new Department of Labor study showed unemployment claims rose 20,000 to 294,000, ahead of economists’ expectations. As wages have risen and job openings continue to soar, economists expected more employers to find qualified workers and boost both incomes and the employment rate.

The week yielded a mixed bag of economic data indicating some strength in America’s recovery.  A new Department of Labor study showed unemployment claims rose 20,000 to 294,000, ahead of economists’ expectations. As wages have risen and job openings continue to soar, economists expected more employers to find qualified workers and boost both incomes and the employment rate.

Some employers, however, are complaining that they still cannot find high-skilled workers. A new study of the National Federation of Independent Business (NFIB) cited difficulties in finding high-quality workers to fill positions.

“Owners still cannot find qualified workers to fill open positions and cite a poor economy and the political climate as their two main reasons for not expanding,” the report said, while NFIB Chief Economist William C. Dunkelberg emphasized that political stasis and uncertainty about this year’s election have driven businesses to be more cautious.

Still, the NFIB index of small business optimism rose to 93.6, with businesses citing plans for higher employment and earnings.

Improvements for small businesses may also be helping broader and stronger GDP growth in the U.S., as the Federal Reserve’s real-time GDP predictor, GDPNow by the Atlanta Fed, rose to 2.2% this week, after the indicator closely predicted the first quarter’s anemic growth rate of just 0.5%.

Weak year-over-year growth in the economy in the first quarter has become a persistent theme in the GDP data since the Global Financial Crisis, with severe weather being often cited as the culprit. This year’s moderate winter was coupled with weak growth, suggesting that other drivers in weak growth at the start of the year may be at play.

Inflation Focus

Although employment growth is remaining weak, the Federal Reserve has begun focusing its attention on inflation as CPI rose 2.2% year-over-year in March, excluding food and energy.

This week, Fed Reserve Bank of Chicago head Charles Evans warned that focusing too heavily on inflation may be counterproductive, and he suggested the Fed become a bit more tolerant of higher inflation in the short-term to ensure that the growth rate does not dip significantly, as it did in the last three years.

“Overshooting a little bit just to make sure you get to 2% strikes me as quite sensible,” he said at a conference this week.

A few indicators of relatively weak inflation came into focus this week, as April’s import prices were far below expectations. Prices for imports rose just 0.3% on a month-over-month basis in April, half of expectations and in-line with the same growth rate in March.

The Bureau of Labor Statistics (BLS) study also saw export prices rising 0.5% in April, a sharp increase from the flat month-over-month price growth seen in March. “Both agricultural and nonagricultural export prices contributed to the April advance,” the BLS said in its report.

While growing monthly, the year-over-year trend remains negative. Import prices fell 5.7% over the past year, driven largely by energy. The BLS noted, however, that the decline was less than it had been since December 2014, thanks in part to rising energy costs.

“Higher fuel prices drove the April advance although non-fuel prices also contributed to the overall increase in import prices,” the report said.