WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits increased last week as the labor market gradually tightened amid higher interest rates, slowing demand in the economy.
But borrowing costs could remain high for some time, as other data on Thursday showed labor costs rose in the first quarter as worker productivity fell.
The Fed raised its key overnight rate by another 25 basis points to a range of 5.00%-5.25% on Wednesday, and indicated it may pause further increases, though it kept a hawkish bias. The Fed has raised its policy rate by 500 basis points since March 2022.
“Labour markets continue to experience exceptionally challenging conditions, but the continued increase in claims now and the potential upside as a result of widespread layoff announcements could be the first steps on the path to more balanced labor market conditions,” said Stuart Hoffman, the company’s chief operating officer. Economic advisor at PNC Financial in Pittsburgh, Pennsylvania.
Initial claims for state unemployment benefits increased by 13K to a seasonally adjusted 242K for the week ending April 29. Economists polled by Reuters expected 240,000 claims in the final week. Unadjusted claims decreased by 5,518 to 219,619 last week.
There was a rise in filings in Kentucky and Massachusetts as well as notable gains in California, which offset a drop of 9,358 in New York as boosts to claims in the state were canceled from spring break.
Claims have been stuck at the high end of their 194,000-247,000 range this year, reflecting a rise in layoffs as the lag and cumulative effects of the US central bank’s fastest rate hike campaign since the 1980s begin to show outside the housing market and the technology sector.
However, the job market remains tight. The government reported on Tuesday that there were 1.6 jobs for every unemployed person in March, well above the 1.0-1.2 range that economists say corresponds to a jobs market that doesn’t generate much inflation.
“The labor market remains very tight,” Federal Reserve Chairman Jerome Powell said at a press conference on Wednesday, but noted that there were “some signs of labor market supply and demand returning to a better balance.”
The claims report showed the number of people receiving benefits after an initial week from Help, a proxy for employment, fell 38,000 to 1.805 million during the week ending April 22. It was the biggest drop in so-called continuing claims since last July, indicating some laid-off workers are finding jobs quickly.
Stocks on Wall Street traded lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
LAYOFFS Rising
The claims report has no bearing on the government’s closely watched employment report for April, which is due on Friday, because it falls outside the survey period.
According to a Reuters survey of economists, non-farm payrolls probably increased by 180,000 last month after rising by 236,000 in March. The unemployment rate is expected to rise to 3.6% from 3.5% in March.
A separate report from global staffing firm Challenger, Gray & Christmas on Thursday showed that US employers announced 66,995 job cuts in April, down 25% from March. However, layoffs jumped 176% compared to April of last year.
Although the labor market is loosening, which could help slow wage growth, lower worker productivity is likely to keep inflation pressures strong.
Nonfarm productivity, which measures output per hour per worker, fell at an annualized rate of 2.7% in the first quarter, after rising at a 1.6% pace in the October-December period, the Labor Department said in another report Thursday.
Economists expected that productivity would decline at a rate of 1.8%. It was down 0.9% from a year ago, marking the fifth quarter in which productivity fell year-on-year, the longest such stretch since the series began in 1948.
During the current business cycle, beginning in the last quarter of 2019, labor productivity grew at an annual rate of 1.1%, which the Department of Labor’s Bureau of Labor Statistics, which produces the report, describes as “a historically low productivity growth rate.”
The BLS noted that “no other prior business cycle experienced lower productivity growth, except for the short six quarters cycle from 1980 Q1 to 1981 Q3, which showed growth of 1.0%.”
Unit labor costs — the price of labor per unit of output — increased at a rate of 6.3% after increasing at a 3.3% pace in the fourth quarter. Unit labor costs increased by an average of 5.8% over last year. Labor costs are rising too quickly to meet the federal inflation target of 2%.
“A potential rate stop by the Fed is entirely conditional on further progress being made in reducing inflation pressures,” said Sal Guattieri, chief economist at BMO Capital Markets in Toronto. “Today’s report indicated the exact opposite.”
(Reporting by Lucia Mutecani) Editing by Paul Simao
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