FX.co ★ The number of unemployed in the US is rising, while household spending is falling

According to the Department of Labor on March 31, applications for national unemployment insurance in the US rose over the past week more than experts expected.

Despite the start of seasonal work - construction, planting and others - the number of initial applications for unemployment benefits increased by 14,000 to 202,000 in the week ended March 26. The median estimate was 196,000 applications.

The number of employed in the US is rising, while household spending is falling

Initial jobless claims on an unadjusted basis increased to 195,460.

California, Michigan and Ohio were the states with the largest increases in unadjusted claims.

The increase came after a week earlier, the number of ongoing applications for government benefits fell to 1.3 million.

Experts believe that the reason lies in the tense and recovering labor market.

The increase in applications also partly reflects week-to-week data volatility as employers frantically try to retain workers and attract new ones.

Claims, which previously hit their lowest levels since 1969, have been declining gradually through most of 2021, following a decline in Covid-19 cases. At the same time, the combination of declining household savings and high inflation is forcing workers to look for work more actively.

Note that this data comes before Friday's government employment report. According to this report, economists expect about half a million jobs were added in the US in March, and the unemployment rate fell to 3.7%.

A separate preliminary report from the ADP research institute on Wednesday showed that US companies added 455,000 jobs this month.

American spending is down

As for consumer spending in the US, it - adjusted for inflation - declined in February. Apparently, the fastest rate of price growth in four decades is limiting demand, forcing households to save on everything from gas to entertainment.

Unadjusted for inflation, spending rose 0.2% since January, though revenues rose 0.5% over the reporting period.

Purchases of goods and services (adjusted) fell 0.4% month-on-month after jumping 2.1% in January.

By category, inflation-adjusted spending on goods fell 2.1% month-on-month after a 5.6% spike in January. Service spending rose 0.6%, the most in seven months.

The core PCE price index, which excludes food and energy and is often seen as a more reliable measure of core inflation, rose 0.4% month-on-month and 5.4% year-over-year.

Spending on goods slowed down after a surge in the previous month, while the decline in the number of cases of Covid-19 supported the growth in spending on services.

The price index for personal consumption spending, the Federal Reserve's benchmark, increased 0.6% month-on-month and 6.4% since February 2021, the highest since 1982.

The median forecasts in the poll of economists were an inflation-adjusted decline of 0.2% month-on-month and a 6.4% increase in the price index compared to last year, so the increase can be considered significant.

Recall that the February report largely reflects the inflationary environment before the start of Russia's war in Ukraine, which further pushed prices.

After the volatility associated with this winter's coronavirus outbreaks and rising energy prices, government data shows US consumers are experiencing the fastest inflation in decades, in line with the report's figures. However, continued demand in the labor market, along with excess savings, gave many households the opportunity to spend more, so economists expected demand to pick up. However, Americans now seem to prefer to keep some of the money, having become accustomed to doing less during the pandemic.

Yet soaring inflation has undermined wage growth, which typically lags current prices.

Rapid inflation in the US economy has left households with less money to spend on goods and services they choose, such as dining out. And while wages and salaries rose by the most in four months, inflation has wiped out much of that growth.

This leads to an increase in the financial burden due to the cost of the same amount of gasoline, utilities, food and rent. All of this is happening against the backdrop of a decline in government aid due to the pandemic, which is affecting spending prospects.

Thus, the personal savings rate - or the share of personal savings in disposable income - rose to 6.3%, and even with this increase, it remains at almost an eight-year low. Adjusted for inflation, disposable personal income declined for the seventh consecutive month.

The data comes ahead of Friday's March jobs report. Economists estimate that employers have added about half a million jobs as pandemic-related restrictions are eased. They also note an acceleration in hourly wage growth and an increase in labor force participation.

Hawks flew out to hunt

Accelerating inflation last month only reinforces concerns about the breadth and persistence of price pressures, which means the Fed is more likely to be aggressive.

A strong March jobs report on Friday will help bolster expectations of a 50% Fed rate hike in May.

"It still seems likely that the expected supply-side healing will come over time as the world eventually returns to some sort of new normal, but the timing and extent of that relief is highly uncertain," Fed Chairman Jerome Powell said in a speech last week. "While we are setting policy, we will be monitoring actual progress on these issues, and will not assume significant short-term relief on the supply side."

Experts suggest that the Fed will have a hard time in this difficult year. We will have to quickly balance price pressure with the growing risks of slowing consumption.

Treasury yields remained lower, the S&P 500 opened lower and the dollar remained higher after the release of the data. Secondary papers did not change pricing due to more than a 70% chance that the Fed will raise rates by 50 basis points at the May meeting.

The Dow Jones Industrial Average fell 27.29 points, or 0.08%, at the open to 35,201.52.

The S&P 500 opened down 3.43 points, or 0.07%, to 4,599.02, while the Nasdaq Composite added 2.50 points, or 0.02%, to 14 thanks largely to good news from Tesla. 444.78 at the opening of trading.