The jobless claim rate in the United States has fallen to near 44 year lows. This is quite remarkable given that only two or three years ago, the United States seemed to be struggling just to maintain growth. The continued success of the economy also suggests that worries over the Trump administration are subsiding.
For the week ended Feb. 25, initial jobless claims for state unemployment benefits dropped a solid 19,000 to a seasonally adjusted 223,000 . This marks the lowest number of claims since March 1973, according to the Labor Department. The data was released last Thursday.
With the unemployment rate at 4.8%, the United States is now nearing full employment. This usually results in rising wages as companies and organizations must pay their workers more or they could leave for new jobs. This, in turn, can generate more consumer spending as consumers have more money.
On the flip side, the Federal Reserve is likely to raise interest rates this month. The Fed has been looking to raise rates for quite some time, but was unable to do so because the labor market has been sluggish. Now that that is no longer true, the Fed will almost certainly raise rates in the near future.
In fact, the rate hike could come this month. The rate hike increase will probably be gradual, so market shocks are unlikely. Still, increasing interest rates tends to cool business and consumer activity. Why? Increased interest rates discourage lending.
Big Boost For UK & Global Markets?
Why do we care about what happens in the United States? As the world’s largest economy, and home to more than 300 million people, what happens in America will impact the world at large. If the United States’ economy is doing well it will bolster demand and production across the globe.
Further, with the United Kingdom set to leave the European Union, it’s likely that the UK and USA will become closer trade partners. This is pure speculation, but the United States and the United Kingdom have long enjoyed a special relationship.
One of the most important aspects of a booming American economy is the possibility that it could spur an up-tick in demand for Chinese goods. There are issues in China’s economy, including asset bubbles, and a lack of efficiency in numerous industries. These issues could boil over and create problems on the global stage.
If American demand spurs the Chinese economy, however, the problems could subside. For now, we’ll be keeping a close eye on China, as well as the United States. Low jobless claims is a great start, but it’s not the final answer.
Besides good jobless claims numbers the personal consumption expenditures (PCE) price index surged by 1.9% as consumers opened up their wallets. This is for the 12 months through January. This also marks the biggest increase since October of 2012, when the United States was digging out of a dramatic recession.
This increased consumer spending could spur exports and economic activity across the globe.