A help wanted sign hangs in a restaurant window in Medford, Mass., on Jan. 25, 2023.Brian Snyder/Reuters
The number of Americans filing new claims for unemployment benefits fell last week, pointing to underlying strength in the labour market that should continue to support the economy.
The second straight weekly decline in claims reported by the Labor Department on Thursday unwound most of the jump at the start of the month, which had lifted applications to a level last seen at the end of August. Though job growth is slowing as a result of hefty Federal Reserve interest rate hikes in 2022 and 2023, layoffs remain very low.
“Claims settled down from the previous week, so the acceleration some had feared hasn’t come to pass,” said Robert Frick, corporate economist at Navy Federal Credit Union. “The labour market remains robust, and if claims are the canary in the coal mine for jobs, it has yet to develop a mild cough.”
Initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 215,000 for the week ended May 18. Economists polled by Reuters had forecast 220,000 claims in the latest week. There were notable declines in filings in California and Indiana.
Companies are generally holding on to their workers after experiencing difficulties finding labour during and after the COVID-19 pandemic. That was underscored by a survey from S&P Global on Thursday showing a moderation in the pace of decline in employment at factories and services businesses in May.
The flash employment PMI climbed to 49.9 this month from a reading of 48.4 in April amid a rebound in manufacturing head count. Services sector employment, however, remained soft in part due to worker shortages. A reading below 50 indicates contraction in private sector employment.
Last month’s decline, which pushed the index into contraction territory for the first time since June 2020, sparked fears among some economists that a deterioration in labour market conditions was around the corner.
The U.S. central bank has raised its policy rate by 525 basis points since March 2022 to slow demand in the economy.
Minutes of the Fed’s April 30-May 1 policy meeting published on Wednesday showed officials assessed that “demand and supply in the labour market, on net, were continuing to come into better balance, though at a slower rate.” But they also noted that conditions had “generally remained tight.”
The Fed has kept its benchmark overnight interest rate in a 5.25 per cent-5.50 per cent range since July. Financial markets expect the first rate cut will come in September.
Stocks on Wall Street were trading higher. The dollar was steady versus a basket of currencies. U.S. Treasury prices fell.
The claims data covered the period during which the government surveyed employers for the nonfarm payrolls component of May’s employment report. Claims rose slightly between the April and May survey weeks.
Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, could offer more clarity on the labour market. The economy added 175,000 jobs in April.
The so-called continuing claims rose 8,000 to a seasonally adjusted 1.794 million during the week ending May 11, the claims report showed. Continuing claims are at historically low levels.
“There is absolutely no sign that the labour market is unravelling in a major way,” said Christopher Rupkey, chief economist at FWDBONDS. “There is no reason for businesses to reduce the head count at their firms any further because the economy continues to perform relatively well given the degree of monetary restraint the Fed has put in place to fight inflation.”
However, higher mortgage rates and rising home prices have taken the shine off the housing market after a strong performance in the first quarter.
New home sales dropped 4.7 per cent to a seasonally adjusted annual rate of 634,000 units in April, the Commerce Department’s Census Bureau said in a third report.
The sales pace for March was revised lower to 665,000 units from the previously reported 693,000 units. The government revised the sales, inventory and months supply data going back to January 2019.
New home sales, which account for about 13.3 per cent of U.S. home sales, declined 7.7 per cent on a year-on-year basis in April. That was the first year-on-year drop since March 2023.
The data followed news on Wednesday that existing home sales fell last month. Government data last week showed single-family housing starts and building permits fell in April. Home builder confidence deteriorated considerably this month.
The average rate on the popular 30-year fixed-rate mortgage increased through April, pushing back above 7 per cent, data from mortgage finance agency Freddie Mac showed.
The median new house price increased 3.9 per cent to $433,500 in April from a year ago. Most of the new homes sold last month were in the $300,000-$499,999 price range. The government updated the sales price range groups to better reflect the current distribution of new home prices.
There were 480,000 new homes on the market at the end of April, up from 470,000 units in March. Houses under construction accounted for the bulk of inventory. At April’s sales pace it would take 9.1 months to clear the supply of houses on the market, up from 8.5 months in March.
“Rising inventories mean home building will likely slow in the second half of the year,” said Bill Adams, chief economist at Comerica Bank. “The broader economy is in pretty good shape.”