A sign advertising job openings is seen outside of a Starbucks in Manhattan, New York City, New York, May 26, 2021.
WASHINGTON (Reuters) — The number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 1-1/2 years, suggesting job growth likely remained solid in January.
The unexpected decline in initial claims reported by the Labor Department on Thursday added to strong retail sales growth in December in painting an upbeat picture of the economy, and could make it difficult for the Federal Reserve to start cutting interest rates in March as financial markets anticipate.
“The claims data are consistent with a labor market that will need further loosening before the Fed considers rate cuts and bolsters our assumption that the March meeting will be too soon,” said Matthew Martin, a U.S. economist at Oxford Economics.
Initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 187,000 for the week ended Jan. 13, the lowest level since September 2022. Economists polled by Reuters had forecast 207,000 claims for the latest week.
Claims data tend to be volatile at the turn of the year. While that could have contributed to some of the drop in claims, economists said the data was consistent with a fairly tight labor market. They noted that companies generally remained reluctant to lay off workers following difficulties finding labor during and after the Covid-19 pandemic.
Unadjusted claims decreased 29,543 to 289,228 last week, with filings plunging 17,176 in New York. The were also significant declines in Michigan, Pennsylvania, Wisconsin, South Carolina, Georgia and Minnesota, which more than offset notable increases in California, Iowa, Kansas and Texas.
“There seems to be no signs of a collapse in the labor market and that is good news for those that believe the economy will continue to expand and that a recession will be averted for this year as well,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
The dollar was steady against a basket of currencies, while U.S. Treasury prices fell.
Financial markets have lowered their bets for a rate cut at the Fed’s March 19-20 policy meeting to below 60%. Fed Governor Christopher Waller said this week the economy was “doing well,” which he said was giving the U.S. central bank “the flexibility to move carefully and methodically.”
The central bank has hiked its policy rate by 525 basis points to the current 5.25%-5.50% range since March 2022.
Homebuilding takes a breather
The claims data covered the period during which the government surveyed employers for the nonfarm payrolls component of January’s employment report.
Claims fell between the December and January survey period, suggesting that strong job growth persisted this month. The economy added 216,000 jobs in December.
Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will offer more clues on the state of the labor market in January.
The so-called continuing claims decreased 26,000 to 1.806 million during the week ending Jan. 6, the lowest since October, the claims report showed.
A separate report from the Commerce Department showed single-family homebuilding taking a breather in December after a recent stretch of gains. New construction remains underpinned by a shortage of previously owned houses for sale.
Single-family housing starts, which account for the bulk of homebuilding, fell 8.6% to a seasonally adjusted annual rate of 1.027 million units last month, the Commerce Department’s Census Bureau said. Rainy weather last month likely contributed to the plunge in homebuilding.
Single-family starts increased 15.8% on a year-on-year basis in December. A rebound in monthly activity is likely as the rate on the popular 30-year fixed mortgage has retreated further to 6.66% after peaking at a 23-year high of 7.79% in late October, according to data from mortgage finance agency Freddie Mac.
Permits for future construction of single-family homes increased 1.7% to a pace of 994,000 units last month, the highest level since May 2022.
The housing market has been pressured by higher borrowing costs and a perennial inventory shortage, which have constrained sales of previously owned homes. But demand for new construction is boosting residential investment, which rebounded in the third quarter after nine straight quarterly decreases.
Starts for housing projects with five units or more increased 7.5% to a rate of 417,000 units in December.
Overall housing starts fell 4.3% to a rate of 1.460 million units in December. Starts declined 9.0% to 1.413 million units in 2023. Multi-family building permits rose 1.4% to a rate of 449,000 units last month. Building permits as a whole increased 1.9% to a rate of 1.495 million units last month. They dropped 11.7% to 1.470 million units in 2023.
The number of houses approved for construction that are yet to be started fell 5.0% to 266,000 units. The single-family homebuilding backlog rose 0.7% to 140,000 units.
The completions rate for that housing segment jumped 8.4% to 1.056 million units. Overall housing completions increased 8.7% to a rate of 1.574 million units.
According to the National Association of Realtors, the inventory of previously owned homes on the market is just above 1 million units, well below nearly 2 million units before the Covid-19 pandemic. Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to bridge the inventory gap.
