US labor market stays tight; cooling business activity

People line up outside a newly reopened career center for in-person appointments in Louisville, US, April 15, 2021. REUTERS / Amira Karaoud / File Photo

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  • Weekly jobless claims fall to 2,000 to 229,000
  • Continuing claims increase by 5,000 to 1.315 million
  • Business activity slows down in June; new orders plummet

WASHINGTON, June 23 (Reuters) – The number of Americans filing new claims for unemployment benefits edged down last week as labor market conditions remain tight, though a slowdown is emerging amid high inflation and rising interest rates.

In the second straight weekly decline reported by the Labor Department on Thursday, claims are hovering near a five-month high. There have been job cuts in sectors like technology and housing as a recession of amid fears as the Federal Reserve aggressively tightens monetary policy to quell price pressures.

“The labor market’s best days are behind it,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

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Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 229,000 for the week ending June 18. Economists polled by Reuters had forecast 227,000 applications for the latest week. Claims have been treading water since tumbling more than a 53-year low of 166,000 in March.

While agreeing that there has been a momentum of loss in the labor market, some economists have also blamed the stalled progress in claims on seasonal factors, the model used by the government to strip out seasonal fluctuations from the data.

“The recent upward trend in the seasonally adjusted data has been recent because unadjusted filings have not declined as much as seasonal factors have been anticipated. Filings before seasonal adjustments have been very low in recent weeks,” said Daniel Silver, an economist at JPMorgan in New. York.

Unadjusted claims fell 3,255 to 202,844 last week. Illinois and Florida reported large declines in claims, which helped offset a notable increase in Michigan.

The overall labor market is tight. There were 11.4 million job openings at the end of April, with nearly two openings for every unemployed person. But with companies reporting freezing hiring and withdrawing employment offers, job openings are set to trend lower.

Stocks on Wall Street were higher, recouping some of the recent steep losses. The dollar advanced against a basket of currencies. US Treasury prices rose.

GROWTH SLOWING

The lack of progress, claims are at an average level seen in 2019. Economists say they will need to rise above the 250,000 mark on a sustained basis to raise alarm.

“There is nothing obvious here that points to a weakening labor market,” said Isfar Munir, an economist at Citigroup in New York. “While anecdotal evidence is suggestive of more firms laying people off, especially tech firms, it is currently being seen in hard data, and even when it does, it is likely to shift to the current narrative.”

The US central bank raised its policy rate by a percentage point of three-quarters last week, its hike since 1994. The Fed has increased its benchmark overnight interest rate by 150 basis points since March.

Fed chair Jerome Powell told lawmakers on Thursday that the labor market was “sort of unsustainably hot.”

Recent retail sales, housing and manufacturing data suggest the economy is already losing momentum after it rebounded from the first quarter’s slump, which was driven by a record trade deficit.

That was reinforced by a survey from S&P Global on Thursday showing its Flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, dropped 51.2 in June from a final reading of 53.6 in May.

A reading over 50 indicates growth in the private sector. Its flash composite orders index tumbled to 47.4, the first contraction since July 2020, from 54.9 in May.

Last week’s claims covered data during the period during which the government surveyed establishments for the nonfarm payrolls component of June’s employment report. Claims rose moderately between the May and June survey periods.

The economy added 390,000 jobs in May. The claims report also showed the number of people receiving benefits after an initial week of aid increased by 5,000 to 1.315 million during the week ending June 11.

Next week’s data on the so-called continuing claims, a proxy for hiring, will shed more light on June’s employment report. Employment is below 822,000 its pre-pandemic level, a gap economists expect will be closed in the coming months.

“New filings increase between the May and June payroll reference weeks, suggesting job growth continues to moderate,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “This is what the Fed wants, as it wants the economy to cool off.”

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Reporting by Lucia Mutikani; Editing by Nick Zieminski and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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