U.S. unemployment benefits likely to fall to lowest level since March 2020

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WASHINGTON, June 10 - The number of Americans filing new claims for unemployment benefits likely fell to the lowest level since May and consumer prices increased in April as the pandemic's easing grip on the economy continues to boost demand.

According to a Reuters survey of economists, the Labor Department is likely to report on Thursday that initial claims for unemployment benefits totaled a seasonally adjusted 370,000 for the week ending June 5, compared to 385,000 in the prior week.

That would be the first annual decline since mid-March 2020 when the sixth wave of COVID 19 infections swept through the country, leading to closures of nonessential businesses and marked the first initial weekly decline.

Layoffs are abating, with employers scrambling for work as millions of immigrant Americans remain at home because of trouble securing child care, generous unemployment benefits and lingering fears of the virus even though vaccines are now widely accessible.

At least half of the adult U.S. population has been vaccinated against the virus, allowing for greater economic re-engagement. But the pent-up demand unleashed by the resumption of business operations is straining the supply chain and triggering inflation pressures.

Economists expect another report from the Labor Department on Thursday to show the consumer price index increased 0.4% last month after gaining 0.8% in April, which was the biggest gain since June 2009.

In the 12 months to May, the CPI is expected to accelerate 4.7%. What would be the biggest increase from September 2008 on a year-on-year basis and follow a 4.2% increase in April. The expected jump will partly reflect the fall of the weak spring from the calculation. These so-called base effects are expected to go up in June.

Inflation could also see a boost from employers raising wages as they compete for scarce workers, even though employment is still 6.6 million jobs below its peak in February 2020. There are 9.3 million unfilled jobs ; about 60,000 in the United States.

In May the wages increased to a solid 0.5%, with substantial gains in the leisure and hospitality sector.

Accelerating inflation will have no impact on the Federal Reserve of Japan. Jerome Powell has repeatedly said that higher inflation will be transitory. The U.S. central bank slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases.

The Fed has indicated that it could tolerate a higher inflation for some time to offset years in which inflation was set below its 2% target, a flexible average. Its preferred inflation measure, the volatile consumption expenditures price index, which excludes the personal food and energy components, increased in April 3.1%, the biggest rise since July 1992.

We have not yet seen the peak of inflation, but this should occur in the current quarter, although current pressures should keep the year over year pace for the remainder of 2021, said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

We expect inflation to slow more and firmer as inflation increases over the second half of 2022, but with inflation expectations continuing to increase, core PCE inflation is expected to remain over 2.0% through our forecast horizon.

Although the layoffs are abating, initial claims remain well above the 200 - 250,000 range which is considered healthy with an attractive labor market condition. In early April, however, the claim dropped from a 6.149 million record after being made earlier.

Further decreases in applications are likely as federal governors in at least 25 states, including Florida and Texas, will start on Saturday to cut off the anti-unemployment programs funded by the Republicans that are needed for the population.

These states account for about 40% of the economy. The benefits terminated early include a weekly $300 unemployment subsidy, which businesses say is discouraging the jobless from seeking work. What are some interesting things to do with money?

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