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Jobless Claims Drop to 498K, Q1 Productivity +5.4%

Thursday, May 6, 2021

Another week of Initial Jobless Claims, another threshold broken through: after three weeks in the mid-to-high 500Ks, new claims have dropped to a 4-handle: 498K. This is obviously a new pandemic low, and a drastic draw-down from the nearly 850K new weekly claims we were seeing just 12 weeks ago. It also represents a fall of 92K from last week’s upwardly revised 590K.

Continuing Claims were up very slightly, more like flat week over week (a week in arrears from new claims): 3.69 million from the previous week’s revised 3.65 million. Of course, with Pandemic Unemployment Assistance (PUA) still in effect to keep these longer-term levels of (pandemic-related) unemployment from spiraling out of control, the downward slope on this print is a lot more steady. That said, we’ve plateau’d in the mid-300Ks now for the past seven weeks.

After 742K new private-sector jobs counted for the month of April by Automatic Data Processing ADP, and with expectations of perhaps a million or more tomorrow in the April read from the U.S. government, we can see the labor market beginning to re-establish itself in the reformation of a once-again robust economy. Leisure & Hospitality once again led all sectors in (re-)hires last month, with Travel & Leisure demand coming just as a majority of U.S. adults have now been vaccinated ahead of the summer.

Productivity in Q1 also posted better-than-expected results ahead of today’s opening bell: +5.4% productivity growth beat estimates by 90 basis points, representing a big swing from a slightly positive revision of -3.8% reported in Q4. That Q4 read was a 40-year low, putting a bottom into quarterly productivity numbers as the economy reawakens in a major way.

Unit Labor Costs for Q1 came in at only a third of expectations: -0.3% from the -1.0% expected, and flipping from a downwardly revised +5.6% in Q4. This apparent contradiction to productivity gains actually points toward levels of employment: average lower labor costs quarter over quarter depict lower-wage jobs being filled at a faster rate than higher-wage jobs. Even if hotels and restaurants struggling to fill all their open dishwasher positions raise their pay rates, this would likely still be the case.

Following a record-high close on the Dow Wednesday afternoon, the blue-chip index is up another 30 points in the current pre-market. The Nasdaq, now roughly 4% below its own record high, looks to open 10 points this morning. The S&P 500 is flat at this hour. Aside from some statements by Fed voting members later in the day, we see tomorrow morning’s nonfarm payroll totals to be the next known market driver.

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