WASHINGTON: The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to another month of solid job growth and continued labour market tightness despite efforts by the Federal Reserve (Fed) to cool demand for workers.
The weekly jobless claims report from the Labor Department on Thursday (Jan 19) likely does not change expectations that the US central bank will further scale back the size of its interest rate increases next month. It, however, poured cold water on financial market hopes that the Fed would pause its fastest rate-raising cycle since the 1980s, which had been fanned by a slump in retail sales in December and a retreat in inflation.
“It is a frustrating reminder for the Fed that the labour market remains tight as employers hold onto workers,” said Matthew Martin, a US economist at Oxford Economics in New York. “We don’t expect a spike in initial jobless claims even as the economy slows.”
Initial claims for state unemployment benefits dropped 15,000 to a seasonally adjusted 190,000 for the week ended Jan 14, the lowest level since September. Economists polled by Reuters had forecast 214,000 claims for the latest week.
Part of the third straight weekly drop in claims likely reflected continuing challenges in adjusting the data for seasonal fluctuations at the start of the year.
But through the seasonal volatility, claims have remained at levels consistent with a tight labour market even as layoffs have accelerated in the technology industry and interest rate-sensitive sectors like finance and housing.
Unadjusted claims dropped by 53,582 to 285,575 last week. There was a jump in claims for California, which were estimated, likely reflecting disruptions caused by recent severe weather in the state. That was offset by sizeable declines in Georgia, Michigan, New Jersey, Wisconsin, New York and Texas.
Microsoft Corp said on Wednesday it would eliminate 10,000 jobs, joining cloud-computing rival Amazon.com, which is pushing ahead with a plan to lay off 18,000 employees.
Economists cautioned against reading the technology layoffs as flagging a deterioration in labor market conditions, arguing that these companies were right-sizing after over-hiring during the Cpvid-19 pandemic.
“The tech sector is just getting back to where they were in 2020 or 2021, which I don’t think is a bad situation,” said John Blevins, a guest lecturer at Cornell University’s SC Johnson College of Business. “It’s still a huge workforce.”
Outside the technology industry, economists say companies are generally reluctant to send workers home after difficulties finding labour during the pandemic. They expect companies to cut back on hiring before resorting to layoffs.
The claims data released on Thursday covered the period during which the government surveyed businesses for the non-farm payrolls component of January’s employment report.
Claims decreased between the December and January survey weeks. The economy added 223,000 jobs in December.
Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will shed more light on employment growth in January.
In the week ending Jan 7, the so-called “continuing claims” rose 17,000 to 1.647 million, the claims report showed. That suggests some unemployed could be experiencing difficulties finding work. While the labour market continues to defy expectations, recession risks are rising.
A separate report from the Commerce Department on Thursday showed single-family homebuilding rebounded in December, but permits for future construction dropped to more than a 2½-year low, pointing to weakness ahead as tighter monetary policy strangles the housing market.
Single-family housing starts, which account for the bulk of homebuilding, increased 11.3% to a seasonally adjusted annual rate of 909,000 units last month, the highest level since August. Starts for housing projects with five units or more tumbled 18.9% to a rate of 463,000 units.
Single-family homebuilding increased in the Northeast, South and West, but fell in the Midwest. Overall housing starts decreased 1.4% to a rate of 1.382 million units last month. Homebuilding fell 3% in 2022.
Single-family building permits declined 6.5% to a rate of 730,000 units, the lowest level since April 2020. Outside the Covid-19 pandemic plunge, these permits were the lowest since February 2016. Building permits for housing projects with five units or more increased 7.1% to a rate of 555,000 units.
News on manufacturing was equally gloomy. A survey from the Philadelphia Fed showed factory activity in the mid-Atlantic region remaining depressed this month. It added to reports this week showing manufacturing in New York state plunging in January to levels last seen in May 2020, and national factory production posting its biggest drop in nearly two years in December.
“The increasingly darkening cloud of weakening economic data has a silver lining, a persistently strong labour market,” said José Torres, senior economist at Interactive Brokers in Miami. – Reuters