The resilience of the labor market and stubbornly high inflation have increased the likelihood that the US Federal Reserve will continue to raise interest rates.
The number of Americans filing new jobless claims fell again last week, pointing to a sustainable job market and heightening fears in financial markets that the US Federal Reserve could continue to raise interest rates.
Those concerns were compounded by another report from the U.S. Department of Labor on Thursday, which showed labor costs rose much faster in the fourth quarter than previously estimated. The labor market remains tight despite mounting risks of a recession, helping to keep inflation up via solid wage increases.
“The job market shows no new signs of deterioration with minimal layoffs despite news of major tech layoffs in recent months, and this will harden Fed officials’ determination to curb economic demand with higher interest rates,” said Christopher Rupkey, chief economist. at FWDBONDS in New York.
Initial claims for state unemployment benefits fell 2,000 to 190,000 on a seasonally adjusted 190,000 for the week ending Feb. 25, the Department of Labor said. It was the seventh consecutive week that claims remained below 200,000. Economists polled by Reuters had forecast 195,000 claims for the past week.
Unadjusted claims fell 9,297 to 201,710 last week. The decline was led by the US states of 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 evidence that high-profile layoffs, especially in the technology sector, have had a material impact on the labor market. 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 speculate that severance payments prevented some laid-off workers from filing claims.
“It is possible that the initial claims may include the layoffs of higher-paid workers who may not be eligible for severance-based unemployment benefits or are not filing for benefits for some other reason,” said Veronica Clark, an economist at Citigroup in New York. York.
Economists also believed that seasonal adjustment factors, the model the government uses to remove seasonal fluctuations from the data, kept claims lower. The seasonal adjustment factors for 2023 will be updated at the end of March.
US stock markets opened 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 likelihood that the Fed will raise rates at least three more times this year, rather than twice. The Federal Reserve has raised its policy rate by 450 basis points since last March from near zero to its current range of 4.5 percent to 4.75 percent, with most of the hikes taking place between May and December.
Inflation may remain high. A second report from the Labor Department showed that unit labor costs — the price of labor per unit — rose 3.2 percent year-on-year last quarter. That was revised from the 1.1 percent rate reported last month.
Labor costs rose 6.9 percent in the third quarter and posted strong gains in the previous two quarters. They rose 6.5 percent in 2022, instead of 5.7 percent as reported last month, too fast to be consistent with the Fed’s 2 percent inflation target.
The claims report found that the number of people receiving benefits after a first week of assistance fell by 5,000 to 1.655 million in the week ending Feb. 18. February’s unemployment rate.
Between the January and February survey periods, persistent claims fell slightly. The unemployment rate was 3.4 percent in January, the lowest in more than 53 years. Economists expect strong job growth in February, although the pace likely slowed due to January’s 517,000 job growth.