WASHINGTON, Dec 23, Reuters - The number of Americans filing new unemployment benefits fell below pre-pandemic levels last week, while consumer spending increased, which puts the economy on track for a strong finish to 2021.
Price pressures continued to build up, with a measure of underlying inflation recording its largest annual increase since the 1980 s in November. The nation is struggling with a rebound in COVID 19 infections, driven by the Delta and highly transmissible Omicron variant, which could crimp economic growth in the first quarter, according to the reports on Thursday.
The Labor Department said initial claims for unemployment insurance were unaffected by a seasonally adjusted 205,000 for the week ended December 18, the same as previously reported by the Labor Department. Early this month, claims dropped to a level last seen in 1969.
Economists polled by Reuters had forecast 205,000 applications for the latest week. Claims fell from a record high of 6.149 million in early April of 2020.
Applications typically increase during the cold weather months but an acute shortage of workers has disrupted that seasonal pattern, resulting in lower seasonally adjusted claims numbers in recent weeks. The labor market is tighter with the unemployment rate at a 21 month low of 4.2%, as opposed to the weekly volatility.
Lou Crandall, chief economist at Wrightson ICAP in Jersey City, said the normal December build-up in layoffs has been more muted than usual this year, resulting in historically low levels of claims in seasonally adjusted terms.
There were record 11.0 million job openings at the end of October. Higher wages as companies scramble for scarce workers are helping to underpin consumer spending.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was up 0.6% last month, according to a report from the Commerce Department on Thursday. Data for October shows spending went up by 1.4% instead of 1.3% as previously reported. Consumer spending was expected to increase by 0.6%, according to economists polled by Reuters.
Consumer spending increased due to travel during the Thanksgiving holiday. Americans started their holiday shopping early to avoid empty shelves because of the shortages, and outlays on goods were weaker.
Consumer spending increased at a 2.0% pace in the third quarter, and the economy grew at a 2.3% annualized rate in the third quarter. Growth forecasts for the fourth quarter are as high as 7.2%. According to a survey of economists, the economy is expected to grow 5.6% for the whole of 2021, which would be the fastest since 1984. The economy contracted by 3.4% in 2020.
Clouds are gathering over the economy's outlook next year. President Joe Biden's signature on the $1.75 trillion domestic investment bill known as Build Back Better, aimed at expanding the social safety net and tackling climate change, suffered a blow on Sunday when moderate Democrat Senator Joe Manchin said he would not support it.
The growth estimates for the next year were slashed by economists.
Inflation increased further in November. The PCE price index, excluding the volatile food and energy components, went up by 0.5% after a similar gain in October.
The Core PCE price index accelerated by 4.7% in the 12 months to November. That was the largest increase since the 1980s and followed by a 4.2% year-on-year advance in October.