© Reuters. An employee hiring sign with a QR code is seen in a window of a business in Arlington, Virginia, U.S., April 7, 2023. REUTERS/Elizabeth Frantz/File Photo
By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting that job growth likely remained solid in February.
Labor market resilience, which is underpinning the economy, reduces the urgency for the Federal Reserve to start cutting interest rates. Minutes of the U.S. central bank’s Jan. 30-31 meeting published on Wednesday showed the majority of policymakers were concerned about the risks of cutting rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level.
“Job layoffs remain minimal so wage pressures from a tight labor market will continue to push off the day when Fed officials can safely lower interest rates without reigniting inflation,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The key economic indicator of whether the economy is slowing down has been and always will be job losses.”
Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 201,000 for the week ended Feb. 17, the Labor Department said on Thursday. Economists polled Reuters via biedexmarkets.com had forecast 218,000 claims for the latest week.
Claims are hovering at historically low levels, despite high-profile layoffs at the start of the year. Unadjusted claims declined 26,053 to 197,932 last week, the lowest level since last October. Claims in California, which were estimated by the state likely because of the holiday-shortened week, plunged 8,584. There were notable decreases in applications in Illinois, Kentucky, Michigan, New York and Texas.
Kentucky had seen a jump in filings in the prior week, attributed to layoffs in the automobile manufacturing and wholesale trade industries. Difficulties finding labor during and after the COVID-19 pandemic have generally left employers reluctant to reduce head count.
Worker productivity has also risen while the economy continues to expand despite the Fed’s aggressive monetary policy stance. Policymakers at last month’s meeting continued to view the labor market as “tight,” the minutes showed, but several “noted that recent job gains were concentrated in a few sectors, which, in their view, pointed to downside risks to the outlook for employment.”
Stocks on Wall Street were trading higher. The dollar was steady against a basket of currencies. U.S. Treasury prices were mostly lower.
HOUSING GREEN SHOOTS
Financial markets have pushed back their expectations for the first rate cut from the Fed to June from May, in the wake of strong job gains in January as well as firmer-than-expected inflation readings at the start of the year.
Inflation is, however, likely on a downward trend. A survey from S&P Global on Thursday showed business activity cooled in February, with a measure of prices paid for inputs falling to the lowest level in nearly 3-1/2 years.
A slowdown in services industry growth, the focus of the inflation battle, accounted for the fall in the S&P Global’s flash U.S. Composite PMI Output Index to 51.4 this month from 52.0 in January. A reading above 50 indicates expansion in the private sector.
Since March 2022, the central bank has raised its policy rate by 525 basis points to the current 5.25%-5.50% range.
The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of February’s employment report. Claims rose marginally between the January and February survey periods. The economy added 353,000 jobs in January.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 27,000 to 1.862 million during the week ending Feb. 10, the claims report showed.
The so-called continuing claims are running a bit higher than their average in 2019, which economists suggested some loosening in labor market conditions. But the insured unemployment rate dipped to 1.2% from 1.3% in the prior week, underscoring the labor market’s tightness.
“Overall, the labor market remains strong although there is a gradual rebalancing of supply and demand for workers, welcome news for policymakers, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
There were signs of green shoots in the housing market, the sector that has borne the brunt of higher borrowing costs, though tight inventory remains a barrier for first-time buyers.
Existing home sales increased 3.1% in January to a seasonally adjusted annual rate of 4.00 million units, the highest level since last August, the National Association of Realtors said in a third report. Buyers took advantage of a retreat in mortgages rates and modest improvement in supply.
The bulk of sales were in the $750,000-$1.0 million and over price bracket, where there is more inventory. Sales of houses below $250,000, considered entry-level homes, remain depressed.
The median existing home price rose 5.1% from a year earlier to $379,100 in January, the highest on record for any January, with multiple offers the norm on mid-priced homes. All cash sales accounted for 32% of transactions last month, the largest share since June 2014.
“We’ll need a combination of lower mortgage rates, price stability if not price drops, and accelerated building to help return the total home sales market back to normal,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.
