By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell slightly more than expected last week, indicating that the labor market recovery was gaining traction.
The weekly jobless claims report from the Labor Department on Thursday also showed unemployment rolls shrinking to levels last seen in 1970, underscoring the tightening labor market conditions. There is an acute shortage of workers, with a near record number of job openings, keeping layoffs minimal.
“Beyond weekly moves, we see the downtrend in filings persisting as virus-related disruptions continue to dissipate and businesses return to more normal operations,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “Overall, strong demand for labor amid labor shortages suggest layoffs will remain low.”
Initial claims for state unemployment benefits decreased 17,000 to a seasonally adjusted 232,000 for the week ended Feb. 19. That almost reversed the prior week’s surge, which economists had blamed on week-to-week volatility in the data and the delayed impact of winter storms early in the month.
Economists polled by Reuters had forecast 235,000 applications for the latest week.
Unadjusted claims tumbled 24,824 to 214,873 last week, led by a sharp decline in Missouri. There were also significant decreases in New York, Ohio, Tennessee, Florida and New Jersey, offsetting a large increase in Michigan.
With 10.9 million job openings at the end of December, claims are likely to fall back below 200,000 in the coming weeks. They were last below this level in early December.
Many Federal Reserve officials view labor market conditions as already at or very close to maximum employment. The U.S. central bank is expected to start raising interest rates in March to tamp down inflation, with economists anticipating as many as seven hikes this year.
The upbeat labor market news was eclipsed by Russia’s invasion of Ukraine, which analysts warned could hurt the U.S. economy as surging oil prices boost inflation, hampering consumer spending. Brent crude prices rose above $100 per barrel for the first time since 2014, which will drive gasoline prices higher. Consumer prices notched their largest year-on-year gain in 40 years in January.
“An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Fed to tighten monetary policy aggressively, and higher interest rates could become a larger headwind for the U.S. economy,” said Gus Faucher, chief economist at PNC Financial in New York.
Stocks on Wall Street tumbled. The dollar rallied against a basket of currencies, while U.S. Treasury yields fell as investors sought a safe haven.
SHRINKING JOBLESS ROLLS
Unemployment claims have plunged from a record high of 6.149 million in early April 2020. The number of people receiving benefits after an initial week of aid dropped 112,000 to 1.476 million during the week ended Feb. 12. That was the lowest level for these so-called continuing claims since March 14, 1970.
The continuing claims data covered the period during which the government surveyed households for February’s unemployment rate. Continuing claims declined between the January and February survey weeks, implying an improvement in the unemployment rate, which was at 4.0% last month.
Fewer people on unemployment rolls also suggest that some out-of-work Americans are returning to the labor force, which could help ease the worker shortage.
Tightening labor market conditions are boosting wage growth and contributing to high inflation. Rising wages and better job security should, however, help underpin consumer spending and sustain the economic expansion despite the headwinds from tighter monetary policy and the Russia-Ukraine conflict.
A separate report from the Commerce Department on Thursday confirmed that economic growth accelerated in the fourth quarter as the drag from a resurgence in COVID-19 infections over the summer, driven by the Delta variant, eased.
Gross domestic product increased at a 7.0% annualized rate last quarter, the government said in its second GDP estimate. That was slightly up from the previously reported 6.9% pace. The economy grew at a 2.3% pace in the third quarter. In 2021, the economy grew 5.7%, the best performance since 1984.
The upward revision to fourth-quarter GDP growth reflected more business spending on equipment and investment in homebuilding than initially thought.
The economic momentum briefly faltered amid an onslaught of coronavirus infections fueled by the Omicron variant. Activity has since picked up as cases subsided.
Retail sales surged in January and business activity rebounded in February, data showed this month. That has created an upside risk to GDP growth estimates for the first-quarter, which are mostly below a 2.0% rate.
The United States is reporting an average of 80,131 new COVID-19 infections a day, sharply down from the more than 700,000 in mid-January, according to a Reuters analysis of official data.
Though a third report showed new home sales dropped 4.5% to a seasonally adjusted annual rate of 801,000 units in January, the housing market remains underpinned by strong demand amid a severe shortage of houses.
“We continue to expect robust GDP growth of 3.5% this year and believe the expansion can withstand Fed tightening,” said
Lydia Boussour, lead U.S. economist at Oxford Economics in New York.
(Reporting by Lucia Mutikani in Washington; Editing by Chizu Nomiyama, Andrea Ricci and Matthew Lewis)