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Recovery in US labor market boosts consumer activity

Recovery in US labor market boosts consumer activity

According to the Wall Street Journal, experts acknowledge that the US economy is clicking into gear by the year-end. The most evident signs are a sharp increase in consumer spending and a faster pace of companies’ capital expenditures. Notably, initial unemployment claims in the US have dropped to the lowest level since November 1969.

The US Commerce Department reported that personal spending expanded by 1.3% in October 2021 whereas personal income rose by 0.5%. A recovery in the labor market sets the stage for lusty consumer activity. For the time being, personal spending rates outrun consumer inflation that has surged to the strongest level for the last three decades.            

In the week before Thanksgiving Day, the US Department of Labor reported that first-time claims for unemployment benefits fell to 199K, the lowest level for the last 52 years. A steep drop of the indicator suggests that growth in wages and robust hiring encourage high rates of consumer spending. In turn, an improvement in the labor market paves the way for a further economic revival despite withdrawal of the government financial aid, analysts at Oxford Economics note.     

Business activity is gaining momentum in most economic sectors in the US. So, American businesses believe in a further improvement beyond 2020. The labor productivity is rising because companies actively raise capital expenditures on equipment and new technologies. Economists at PNC Financial Services Group Inc. anticipate this trend will extend next year.        

Large US air carriers increased the number of international flights in November because travel restrictions were lifted that had barred foreign visitors. Travel expenses add to the overall growth of retail sales in the US.     

Interestingly, retailers reported buoyant demand for most consumer goods ranging from clothing to household electronics despite soaring inflation. Analysts at Target Corp. and TJX Cos. reckon that retailers managed to solve problems in logistic chains to ensure strong sales in the final quarter of 2021.

Higher wages also contribute to growing personal spending. Specialists think that a pay raise encourages consumers to spend more. At the same time, a lot of American employers have trouble with hiring new personnel. Retailers, the travel and hospitality industry, logistics companies, and recreation firms complain about a shortage of the labor force. Employers in these sectors raise wages for their personnel who, in turn, ramp up consumption rates.                  

The COVID-19 pandemic remains the main culprit to derail the rapid economic recovery. The US toll of new coronavirus cases rose in November. The optimistic outlook is overshadowed by the Omicron coronavirus variant. Experts fear that infection rates may escalate because people tend to stay indoors in the winter.

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