Labor Market Heats Up, But Whither Services Sector?

The U.S. labor market in 2017 is getting a bit tighter. And at the same time, the services sector is slowing bit, as measured by economic data in July, dinging what Reuters reported is a “brightening economic outlook.”

The news headlines showed that the number of Americans filing for unemployment benefits was down in the last week, off 5,000 to a seasonally adjusted 240,000 number in the period that ended July 29.

At the same time, the services sector is at an 11-month low. That may signal, if the pace keeps up, a lull in inflation, as the sector represents roughly two-thirds of the U.S. domestic economy.

The result was slightly better than expected, as economists had a consensus at 242,000 filings. The claims have been below a 300,000 threshold for 126 weeks straight, indicating the longest such stretch in 47 years, though the newswire noted that back then, the labor force was a bit smaller.

The four-week average stood a little over 241,000, down 2,500. That is the lowest level in more than two months. Unemployment, as measured traditionally, stands at 4.4 percent as of the latest reading, a level typically signaling full employment. The latest economic data on GDP growth show an initial reading of 2.6 percent gains for the second quarter of 2017.

In an interview with Reuters, Chris Rupkey, chief economist at MUFG, said that “the services economy is cooling, which makes the Fed’s goal of 2 percent inflation a little harder to achieve. But with the labor market tight, the Fed can continue mopping up the stimulus provided to fight the financial crisis and recession.”

As was reported last week, the Federal Reserve decided to keep its benchmark interest rate unchanged at a time when inflation in the economy remains relatively low, and where readings have been a bit higher than 1 percent.



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