US weekly jobless claims fall to a nine-month low; speed of productivity gains

WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits fell to a nine-month low last week, as the labor market remained resilient despite higher borrowing costs and growing fears of a recession this year.

The sudden drop in weekly jobless claims reported by the Labor Department on Thursday fueled cautious optimism that the economy could avoid a recession or suffer a short, shallow downturn. Federal Reserve Chairman Jerome Powell told reporters on Wednesday that “the economy can return to an inflation rate of 2% without a significant deflation or a significant increase in the unemployment rate.”

“Someday soon economists will have to remove these calls for a recession in 2023 because the labor market refuses to budge on the lowest unemployment rate in decades,” said Christopher Rupke, chief economist at FWDBONDS in New York.

Initial claims for state unemployment benefits fell by 3,000 to a seasonally adjusted 183,000 for the week ending Jan. 28, the lowest level since April 2022. It was the third consecutive weekly decline in claims. Economists polled by Reuters had expected 200,000 applications in the last week.

Unadjusted claims fell 872 to 224,356 last week. There were significant decreases in applications in Kentucky, California and Ohio, which offset increases in Georgia and New York.

Claims have been down this year, consistent with an ever-tightening job market. On Wednesday, the government reported that there were 11 million vacancies at the end of December, with 1.9 opportunities for every unemployed person.

“The labor market has not yet responded meaningfully to the rapid increase in interest rates,” said Rubella Farooqui, chief US economist at High Frequency Economics in White Plains, New York.

Outside the tech industry and interest rate-sensitive sectors like housing and finance, employers have been reluctant to lay off workers after struggling to find work during the pandemic, and also because optimistic economic conditions will improve later this year.

A report from the Institute for Supply Management on Wednesday said manufacturers “indicate that they will not cut staff numbers significantly because it is positive in the second half of the year.”

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. US Treasury yields fell.

narrow labor market

The US central bank on Wednesday raised interest rates by 25 basis points to a range of 4.50%-4.75%, promising “continued increases” in borrowing costs.

The claims report showed that the number of people receiving benefits after an initial week from Help, a proxy for employment, fell by 11,000 to 1.655 million during the week ending Jan. 21. This is partly due to increases recorded in the previous two weeks in continuing claims.

The claims data has no impact on the January employment report, due for release on Friday, because it falls outside the survey period. According to a Reuters poll of economists, non-farm payrolls probably increased by 185,000 last month.

The economy created 223,000 jobs in December. The unemployment rate is expected to rise to 3.6% from a more than 50-year low of 3.5% in December.

A series of layoffs in the technology sector fueled job cuts in January. A separate report released Thursday by global staffing firm Challenger, Gray & Christmas showed job cuts announced by US employers rose 136% to 102,943. This was the highest January total since 2009.

The technology sector accounted for 41% of the job cuts, with 41,829 job cuts. Retailers announced 13,000 jobs, while financial firms planned to lay off 10,603 workers.

“It’s hard to reconcile the seemingly diametrically opposed messages from the unemployment claims data and the job cuts data from the Challenger,” said Daniel Silver, an economist at JPMorgan in New York. “One possible explanation for the latter difference is that people are being laid off, but they are not filing for unemployment insurance. This could be because people are more easily able to find new work or because severance payments delay their eligibility for unemployment benefits.”

Despite the tightening of the labor market, wage inflation is slowing and could continue to do so as a third report from the Labor Department showed that worker productivity accelerated at an annualized rate of 3.0% in the fourth quarter, the fastest in a year, after rising at a 1.4% pace in the third quarter.

Productivity decreased by an average of 1.5% compared to last year and decreased by 1.3% in 2022. But this is largely due to distortions caused by the COVID-19 pandemic. Productivity increased by 5.1% compared to the fourth quarter of 2019.

As a result, unit labor costs — the price of labor per unit of output — rose at a rate of 1.1%. It was the smallest gain since the first quarter of 2021 and followed a 2.0% growth pace in the third quarter. Although unit business costs rose an average of 4.5% from a year ago, they were below their peak of 7.0% in the 12 months through the second quarter of 2022.

“The upshot is that even without a rise in unemployment and with suspiciously flexible jobs, the labor market is no longer a significant source of inflationary pressure,” said Paul Ashworth, chief North America economist at Capital Economics in Toronto. .

(Reporting by Lucia Mutecani) Editing by Andrea Ricci

Our standards: Thomson Reuters Trust Principles.