Signs of economic downturn become more and more staggering as U.S. productivity drops at historic 3 percent rate. The number of people filing for unemployment rose unexpectedly last week, with clear indication of a discouraged job market and a loss of momentum.
The signs are also backed by a report issued Thursday, which announced 218% increase in job cuts by U.S.-based companies. The season of layoffs is expected particularly in the retail and energy sectors.
Requests for state unemployment benefits rose by 8,000 for the last week of January. This comes after the global outplacement consultancy firm Challenger, Gray & Christams reported that employers were planning to cut 75,114 jobs last month, much more than the 23,662 cuts from December.
Main causes for this include a decrease in capital spending by the energy field, which is recuperating from the drop in oil prices and inventory destocking made by businesses around the U.S.
U.S. stock index futures also experienced losses, with prices for Treasuries going up. The dollar is also experiencing a currency depreciation, dropping to a 15-week low against the euro.
The Federal Reserve is also a big player in this situation, as it decides how fast they should raise interest rates in order to keep inflation at a moderate level.
The weak productivity is also a reflection of the large slowdown in GDP during the final quarter and of the hiring pace acceleration. The average annual rate of productivity has grown by 1.2% between 2007-2015, much less than the long-term rate of 2.1%, which we had gotten used to.
The January employment report is set to be released on Friday and there are strong chances that it will fall under the same trend of deceleration of job growth.
Furthermore, a recent report issued by the Institute for Supply Management highlights that service sectors like retail, health and banking experienced this month the slowest growth in almost two years, adding even more to the general perception that the economy is softening.
There are some voices which claim that the loss in productivity is due partly to the lack of business investments in new equipments. That said, if business investments accelerate, that should also put productivity at a higher stream.
With inflation stagnating at the moment, economists predict a troubling trend. However, the climate should get better within the next few months, as the temporary factors will fade and labor costs will rise.
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