- Weekly jobless claims fall 2,000 to 190,000
- Continued claims fall by 5,000 to 1.655 million
- Labor costs in the fourth quarter were revised higher
WASHINGTON, March 2 (Reuters) – The number of Americans filing new claims for unemployment benefits fell again last week, pointing to continued labor market strength and raising financial market fears that the Federal Reserve may continue to raise interest rates for longer .
Those concerns were further heightened by another report from the Labor Department on Thursday showing that labor costs grew much faster than previously estimated in the fourth quarter. The labor market remains tight despite rising risks of a recession, helping to keep inflation high via solid wage increases.
“The labor market is showing no new signs of deterioration with minimal job cuts despite news of large tech layoffs over the past several months, and this will harden Fed officials’ resolve to curb economic demand with higher interest rates,” said Christopher Rupkey. chief economist at FWDBONDS in New York.
Initial claims for state jobless benefits fell by 2,000 to a seasonally adjusted 190,000 for the week ended Feb. 25, the Labor Department said. It was the seventh week in a row that claims remained below 200,000. Economists polled by Reuters had forecast 195,000 claims for the past week.
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Unadjusted claims fell 9,297 to 201,710 last week. The decline was led by California and Kentucky. There were notable declines in claims in Michigan, Ohio and Texas. Large increases in claims were reported in Massachusetts and Rhode Island.
There is still no sign that high-profile layoffs, mainly in the technology sector, have had a significant impact on the labor market, and economists and policymakers say these companies hired too many workers during the COVID-19 pandemic and were not representative of the overall economy .
Economists also speculated that severance plans kept some laid-off workers, most of them highly paid, from filing claims. With 1.9 vacancies for every vacancy in December, people who have lost their jobs can easily find work.
Seasonal adjustment factors, the model the government uses to remove seasonal fluctuations from the data, could also keep claims lower, according to economists. The seasonal adjustment factors for 2023 will be updated at the end of March.
But even using alternative seasonal adjustments, economists say the labor market still exhibits tightness. Employers generally appear reluctant to let workers go after difficulties finding labor during the pandemic.
A survey by the Institute for Supply Management found Wednesday that sentiment among respondents’ businesses “still favors attempts to hire over reducing employment levels.”
Stocks on Wall Street were mostly trading lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
The resilience of the labor market and stubbornly high inflation have increased the chances that the Fed will raise interest rates at least three more times this year instead of twice. The U.S. Federal Reserve has raised its key interest rate by 450 basis points since last March from near-zero levels to the current range of 4.50%-4.75%, with the bulk of increases coming between May and December.
Inflation may remain high. Another Labor Department report showed unit labor costs—the cost of labor per single unit of output – grew by 3.2% annually last quarter. That was revised up from the 1.1% pace reported last month. Labor costs accelerated by 6.9% in the third quarter and rose sharply in the previous two quarters.
They rose by 6.5% in 2022 instead of 5.7% as reported last month. Economists estimated that labor costs were running at a pace consistent with core inflation slowing to 4% by the end of the year, double the Fed’s 2% inflation target.
The core price index for private consumption expenditures, one of the measures the Fed follows for monetary policy, rose 4.7% in January.
Hourly compensation grew by 4.7% in 2022. It averaged 5.0% over the past five years, well above the 3% that some politicians consider compatible with inflation targeting.
Higher labor costs meant that non-agricultural productivity, which measures hourly output per workers, grew just 1.7% last quarter, down from the previously reported 3.0% pace.
“The revised data suggest that the underlying inflation problem in the US is worse than previously thought,” said Michael Pearce, chief US economist at Oxford Economics in New York. “That helps explain the sustained price increase in prices, which is mostly a reflection of domestically driven labor costs.”
The claims report showed that the number of people receiving benefits after a first week of aid fell by 5,000 to 1.655 million in the week ending February 18. The so-called continuing claims, a proxy for employment, covered the period when the government surveyed households for February’s unemployment rate.
Continued injuries declined modestly between the January and February survey periods. Unemployment in January, at 3.4%, was the lowest in more than 53 years. Economists expect strong employment growth in February, although the pace likely slowed from January’s blockbuster gain of 517,000 jobs.
“There’s no question the labor market is very strong,” said Stuart Hoffman, senior economic adviser at PNC Financial in Pittsburgh, Pennsylvania. “We expect February payroll jobs to increase by close to 215,000.”
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao
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