Politics

US labor market stays resilient

3 Mins read
REUTERS

WASHINGTON – The number of Americans filing new claims for unemployment benefits was unchanged at a low level last week, pointing to continued labor market strength that is driving the economy.

Labor market resilience, together with elevated inflation have led financial markets and some economists to expect that the Federal Reserve could delay cutting interest rates until September. A few economists doubt that the U.S. central bank will lower borrowing costs this year.

“Overall, layoffs remain low,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “We expect a continuation of the current trend, with a further adjustment in the labor market coming from a moderation in hiring rather than a surge in firings.”

Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 212,000 for the week ended April 13, the Labor Department said on Thursday.

Economists polled by Reuters had forecast 215,000 claims in the latest week. Claims have been bouncing around in a 194,000-225,000 range this year.

Unadjusted claims declined 6,756 to 208,509 last week. Filings in California jumped by 3,063. There were also notable increases in claims in Connecticut, Georgia and Oregon.

These were more than offset by a decline of 4,551 in filings in New Jersey. Claims in the state had surged in the prior week, a move that was blamed on layoffs in the accommodation and food services, transportation and warehousing, and public administration industries. There were also significant decreases in filings in Minnesota, Ohio, Pennsylvania and Wisconsin.

Fed Chair Jerome Powell backed away on Tuesday from providing any guidance on when rates might be cut, saying instead that monetary policy needed to be restrictive for longer. Financial markets initially expected the first rate cut to come in March, but the timing got pushed back to June and now to September as data on the labor market and inflation continued to surprise on the upside in the first three months of the year.

The Fed has kept its policy rate in the 5.25%-5.50% range since July. It has raised the benchmark overnight interest rate by 525 basis points since March of 2022.

The claims data covered the period during which the government surveyed businesses and other establishments for the nonfarm payrolls component of April’s employment report. Claims were unchanged between the March and April survey weeks. The economy added 303,000 jobs in March.

Stocks on Wall Street were trading higher. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.

RISING LABOR SUPPLY

The Fed’s latest “Beige Book” report on Wednesday described employment as rising at a “slight pace overall” since late February, adding that “several districts reported improved retention of employees, and others pointed to staff reductions at some firms.”

It also noted that even as labor supply has improved, “many districts described persistent shortages of qualified applicants for certain positions, including machinists, trades workers and hospitality workers.”

Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will offer more clues on the state of the labor market in April. The so-called continuing claims edged up 2,000 to 1.812 million during the week ending April 6, the claims report showed.

Though still low by historical standards, the slightly elevated level of continuing claims suggests it could be taking longer for some unemployed workers to land new jobs.

With the outlook for rate cuts uncertain, the average rate on the popular 30-year fixed-rate mortgage has drifted above 7%, data from mortgage finance agency Freddie Mac showed, combining with higher house prices to depress home sales.

A separate report from the National Association of Realtors showed existing home sales fell 4.3% in March to a seasonally adjusted annual rate of 4.19 million units.

Home resales, which account for a large portion of U.S. housing sales, declined 3.7% on a year-on-year basis in March.

Sales also continued to be constrained by tight supply, especially in the lower price segment of the market, resulting in multiple offers for properties. The median existing home price increased 4.8% from a year earlier to $393,500 in March. That was a record high for the month of March.

Sales of houses in the $100,000-$250,000 price range declined 15.8% year-on-year. By contrast, sales for houses priced $1 million and above increased 14.0% from a year ago.

The weak sales followed data this week showing housing starts and building permits tumbled in March.

“We’re forecasting a very subdued recovery in existing home sales,” said Thomas Ryan, property economist at Capital Economics. “Borrowing costs will fall from where they are now, but not enough to fully offset mortgage rate ‘lock-in’ effects, which will continue to hold back sales volumes.”

While the housing market has regressed, signs of revival in manufacturing are growing. A third report from the Philadelphia Fed showed its gauge of factory activity in the mid-Atlantic region rising to a two-year high in April amid a jump in new orders. But businesses reported paying more for inputs, suggesting a pick-up in goods prices could be looming.

Some economists were, however, not too concerned about the rise in the survey’s prices paid measure, noting the recent rebound in oil prices amid tensions in the Middle East. Falling goods prices were the main driver of lower inflation last year.

Data this week showed manufacturing production rebounded in March from a year ago.

“While far from conclusive, this report provides some marginal support in favor of a recovery in the manufacturing sector after its prolonged slump,” said Oliver Allen, senior U.S. Economist at Pantheon Macroeconomics. — Reuters