Low weekly jobless claims underscore U.S. labor market tightness; Q3 growth revised up

  • Weekly jobless claims rise 2,000 to 216,000
  • Continuous claims fell by 6,000 to 1.672 million
  • Third quarter GDP growth improved to 3.2%

WASHINGTON, Dec 22 (Reuters) – The number of Americans filing new claims for unemployment benefits rose less than expected last week, pointing to a still tight labor market, while the economy rebounded faster than previously estimated in the third quarter.

The strength of the labor market, which was also underscored by some contraction in the unemployment rolls in early December after expanding largely since October, raises the risk that the Federal Reserve could continue to raise interest rates to higher levels and keep them there for a while as it tries to curb inflation. solves . The US central bank is trying to reduce demand for everything from housing to labor to bring inflation back to its 2% target.

Christopher Rupkey, chief economist at FWDBONDS in New York, said the economy is not as close to death’s door as markets thought. “The Fed may need to raise interest rates even further in 2023 as the economy does not slow so upward price pressures may continue.”

Initial claims for state jobless benefits rose 2,000 to a seasonally adjusted 216,000 in the week ended Dec. 17, largely intact from the previous week’s decline, Labor Department data showed Thursday.

Economists polled by Reuters had forecast 222,000 claims for the latest week. Claims have been up and down in recent weeks, but have remained below the 270,000 threshold that economists said would raise a red flag for the labor market.

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Layoffs in the technology sector and interest-rate-sensitive industries like housing have not had a material impact on claims so far. Unprocessed claims fell by 4,064 to 247,867 last week, offsetting large increases in Massachusetts, amid big declines in California, Indiana, Ohio and Texas.

“It looks like we have a structural labor shortage,” Fed Chair Jerome Powell said last week. The Fed last Wednesday raised its policy rate by 50 basis points to a range of 4.25%-4.50%, the highest since late 2007. Fed officials expect rates to rise to between 5.00% and 5.25% next year.

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

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of the December employment report.

Claims fell modestly between the November and December survey weeks, indicating another month of solid employment gains. Employment growth has averaged 392,000 per month this year. Next week’s data on the number of people filing for unemployment will give more clues about hiring conditions in December.

Hoarding workers

Economists believe that companies are likely to cut back on hiring before starting layoffs. Employers are generally reluctant to lay off workers after struggling to find labor during the COVID-19 pandemic.

The claims report showed that the number of people receiving benefits after an initial week of aid fell by 6,000 to 1.672 million in the week ended December 10, retreating from a 10-month high. So-called continuous claims, a proxy for hiring, have trended higher since early October.

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Despite the recent increase, continuous claims are about 150,000 lower than they were at this time in 2019, leading some economists to suggest the labor market is far from loosening.

“Because persistent claims are so low, there is a much smaller pool of ‘potential’ workers who can be hired,” said Isfar Munir, an economist at Citigroup in New York.

“While this may simply be indicative of a larger-than-normal number of people turning off the unemployment benefit program, it ultimately does not help loosen the labor market unless these individuals choose to return to work.”

However, other economists believed that the unemployment rate for people on unemployment benefits stuck at an eight-month high of 1.2%, a sign of caution among businesses about hiring new workers as they braced for a sharp recession next year.

Still, labor market strength is helping to strengthen the economy by generating solid wage gains, which contribute to higher consumer spending.

Another report from the Commerce Department on Thursday confirmed that the economy recovered in the third quarter after contracting in the first half of the year.

Gross domestic product grew at an annualized rate of 3.2% in the last quarter, the government said in its third estimate of GDP. That improved from the 2.9% pace recorded last month. The economy shrank by 0.6% in the second quarter.

The upward revision of GDP in the last quarter reflected an upgrade in consumer spending, business investment as well as state and local government spending. Domestic demand was also revised higher to show moderate growth instead of remaining soft.

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But the decline in the housing market was deeper than previously estimated, with residential investment contracting for six straight quarters, the longest since the housing market collapsed in 2006.

Reuters Graphics

16 out of 22 industries led by information, professional, scientific and technical services as well as mining, retail trade and real estate, rental and leasing contributed to the recovery in GDP. Construction subtracted the most from GDP followed by utilities and the finance and insurance industries.

Reuters Graphics

Growth estimates for the fourth quarter are as high as 2.7%, with consumers withdrawing heavily, also weighed down by savings accumulated during the pandemic.

Household incomes rose in the third quarter for the first time after adjusting for inflation as price pressures eased. Business spending on equipment has also remained resilient.

Still, a slowdown is likely next year as labor market strength increases the likelihood of more rate hikes, further reducing household wealth, which is being weighed down by declining stock markets and housing prices. Consumers are also reducing their savings and a stronger dollar will hurt exports.

A third report shows that the Conference Board’s leading indicator, future U.S. A measure of economic activity fell for the ninth consecutive month in November.

Reuters Graphics

“We expect a mild slowdown in the spring of 2023,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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