- Weekly jobless claims increase by 13,000 to 242,000
- Continuing claims fall 38,000 to 1.805 million
- Productivity falls by 2.7% in the first quarter
WASHINGTON, May 4 (Reuters) – The number of Americans filing new jobless claims rose last week as the labor market gradually softened amid higher interest rates, which are cooling demand in the economy.
But borrowing costs could remain high for some time, with other data on Thursday showing labor costs rose in the first quarter as worker productivity fell.
The Federal Reserve raised its overnight benchmark interest rate by another 25 basis points to a range of 5.00%-5.25% on Wednesday, signaling it may hold off on further hikes, although it retained a hawkish bias. The Fed has raised the policy rate by 500 basis points since March 2022.
“Labor markets continue to experience exceptionally tight conditions, but the now sustained increase in claims and potential further recovery from the spread of layoff announcements may be the first steps toward more balanced labor market conditions,” said Stuart Hoffman, senior economic advisor at PNC Financial in Pittsburgh, Pennsylvania.
Initial claims for state unemployment benefits rose by 13,000 to a seasonally adjusted 242,000 for the week ended April 29. Economists polled by Reuters had forecast 240,000 claims for the past week. Unadjusted claims fell 5,518 to 219,619 last week.
There were increases in registrations in Kentucky and Massachusetts, as well as a notable gain in California, which offset a drop of 9,358 in New York as the increase in claims in the state from spring break was phased out.
Claims have been stuck at the upper end of the 194,000-247,000 range this year, reflecting an increase in layoffs as the delayed and cumulative effects of the U.S. central bank’s fastest rate hike campaign since the 1980s begin to be felt outside the housing market and the technology sector.
Nevertheless, the labor market is still tight. There were 1.6 job vacancies for every unemployed person in March, the government reported on Tuesday, well above the 1.0-1.2 range that economists say is consistent with a labor market not generating too much inflation.
Fed Chairman Jerome Powell said at a press conference on Wednesday that “the labor market remains very tight,” but noted that there were “some signs that labor market supply and demand are coming back into better balance.”
The number of people receiving benefits after a first week of assistance, a proxy for employment, fell 38,000 to 1.805 million in the week ended April 22, the claims report showed. It was the largest drop in so-called continuing claims since last July, suggesting that some of the laid-off workers are quickly finding work.
Stocks on Wall Street traded lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
LINEUPS ARE INCREASING
The damage report has no bearing on the government’s closely watched employment report for April, which is scheduled to be released on Friday, as it falls outside the survey period.
According to a Reuters poll of economists, nonfarm payrolls likely rose by 180,000 jobs last month after rising 236,000 in March. Unemployment is estimated to have risen to 3.6% from 3.5% in March.
A separate report from global outplacement firm Challenger, Gray & Christmas on Thursday showed that US employers announced 66,995 layoffs in April, down 25% from March. Redundancies, however, increased by 176% compared to April last year.
Although the labor market is loosening, which may help slow wage growth, falling labor productivity is likely to keep inflationary pressures strong.
Nonfarm productivity, which measures hourly output per worker, fell at a 2.7% annual rate in the first quarter after rising 1.6% in the October-December period, the Labor Department said in another report Thursday.
Economists had predicted that productivity would fall by 1.8%. It fell 0.9% from a year ago, marking the fifth quarter that productivity fell on an annual basis, the longest such stretch since the series began in 1948.
During the current business cycle, starting in the fourth quarter of 2019, labor productivity has grown at an annual rate of 1.1%, which the Department of Labor’s Bureau of Labor Statistics, which produces the report, described as “a historically low rate of productivity growth.”
The BLS noted that “no other previous business cycle had lower productivity growth, except for the short six-quarter cycle from 1980 Q1 to 1981 Q3, which showed 1.0% growth.”
Unit labor costs – the price of labor per single unit of output – rose 6.3% after rising 3.3% in the fourth quarter. Unit labor costs rose by 5.8% from a year ago. Labor costs are rising too quickly to be consistent with the Fed’s 2% inflation target.
“The Fed’s potential rate break is entirely contingent on making further progress in reducing inflationary pressures,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “Today’s report marked the exact opposite.”
Reporting by Lucia Mutikani; Editing by Paul Simao
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