By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell last week and the prior period’s data was revised sharply lower, suggesting labor market conditions remain tight despite a slowdown in momentum due to higher interest rates.
The weekly unemployment claims report from the Labor Department on Thursday combined with strong industrial production in July and underlying retail sales growth to allay fears that the economy was in recession. The claims report, the most timely data on the economy’s health, could give the Federal Reserve more ammunition to deliver another hefty rate hike next month.
“Fears of broad-based layoffs have yet to materialize,” said Mahir Rasheed, a U.S. economist at Oxford Economics in New York. “Still, we doubt claims will accelerate sharply as labor demand remains well ahead of labor supply, while the outlook for the economy remains relatively positive despite elevated uncertainty regarding inflation and growth.”
Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 250,000 for the week ended Aug. 13. Data for the prior week was revised to show 10,000 fewer claims filed than previously reported. Economists polled by Reuters had forecast 265,000 applications for the latest week.
The hefty revision and last week’s modest decline pulled claims well below the 270,000-300,000 range that economists say would signal a material slowdown in the labor market.
Unadjusted claims fell 4,536 to 191,834 last week. A surge in applications in Massachusetts was offset by notable declines in California, Ohio, Texas and Georgia.
Companies in the interest rate-sensitive housing and technology industries have been laying off workers in response to slowing demand caused by the Fed’s aggressive monetary tightening campaign to tame inflation. But elsewhere, businesses are hungry for workers. There were 10.7 million job openings at the end of June, with 1.8 openings for every unemployed worker.
Strong demand for labor was underscored by a separate report from the Philadelphia Fed on Thursday showing a measure of employment at factories in the Mid-Atlantic region surged in August and businesses were optimistic about the jobs market over the next six months.
As a result, the Philadelphia Fed’s manufacturing index rebounded to a reading of 6.2 this month from -12.3 in July. A reading above zero indicates expansion in the region’s manufacturing, which covers eastern Pennsylvania, southern New Jersey and Delaware.
Graphic: Factory input price pressures ease https://graphics.reuters.com/USA-ECONOMY/INFLATION/myvmneyjkpr/chart.png
The rebound was in stark contrast with a collapse in a gauge of factory activity in New York state reported by the New York Fed early this week.
Stocks on Wall Street were trading largely higher. The dollar gained versus a basket of currencies. U.S. Treasury prices rose.
TIGHT LABOR MARKET
“Labor markets are still tight and underlying economic production is still resilient,” said Isfar Munir, an economist at Citigroup in New York. “This pushes back on the narrative of a weakening economy in the near term and should help push the Fed towards maintaining a hawkish stance.”
But recession risks remain. The Conference Board’s leading indicator fell for a fifth consecutive month in July, though the pace moderated.
The U.S. central bank is expected to raise its policy rate by 50 or 75 basis points next month. The Fed has hiked this rate by 225 basis points since March.
Minutes of the July 26-27 policy meeting published on Wednesday showed that though Fed officials “observed that the labor market remained strong,” many also noted “there were some tentative signs of a softening outlook for the labor market.”
Last week’s claims data covered the period during which the government surveyed businesses for the nonfarm payrolls portion of August’s employment report. Claims fell between the July and August survey periods. The economy created 528,000 jobs in July.
Data next week on the number of people receiving benefits after an initial week of aid will shed more light on job growth prospects for August.
The so-called continuing claims, a proxy for hiring, increased 7,000 to 1.437 million in the week ending Aug. 6.
While the labor market remains resilient, the housing market is wilting. A fourth report from the National Association of Realtors showed existing home sales dropped 5.9% to a seasonally adjusted annual rate of 4.81 million units in July, the lowest level since May 2020 during the COVID-19 lockdowns.
Outside the pandemic, sales were the slowest since November 2015. July marked the sixth straight monthly decline, the longest such stretch since 2013. The sales drop occurred across all four regions and followed on the heels of news this week that single-family homebuilding hit a two-year low in July.
Graphic: U.S. existing home prices hit a record … again https://graphics.reuters.com/USA-ECONOMY/HOUSING/zgvomxzabvd/chart.png
Though higher borrowing costs are weighing on housing, an outright collapse is unlikely because single-family homes for sale remain scarce, keeping prices elevated. Eighty-two percent of homes sold in July were on the market for less than a month.
The median existing house price increased 10.8% from a year earlier to $403,800 in July. While that was the smallest gain in two years, prices typically retreat in July after surging in June. With fewer homes being built, prices could remain high even as demand softens, presenting a challenge for the Fed.
“A meaningful price drop is unlikely,” said Nicole Bachaud, senior economist at Zillow. “Falling prices should bring demand back to the market and put pressure on prices to go right back up, especially as inventory is stabilizing at a much lower level than the pre-pandemic norm.”
(Reporting by Lucia Mutikani; Editing by Mark Porter and Paul Simao)