US weekly jobless claims unexpectedly fall amid labor market tightness

By Lucia Mutikani

WASHINGTON (Reuters) -The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting that job growth likely remained solid in February.

Labor market resilience, which is underpinning the economy, reduces the urgency for the Federal Reserve to start cutting interest rates. Minutes of the U.S. central bank’s Jan. 30-31 meeting published on Wednesday showed the majority of policymakers were concerned about the risks of cutting rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level.

“Job layoffs remain minimal so wage pressures from a tight labor market will continue to push off the day when Fed officials can safely lower interest rates without reigniting inflation,” said Christopher Rupkey, chief economist atFWDBONDS in New York. “The key economic indicator of whether the economy is slowing down has been and always will be job losses.”

Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 201,000 for the week ended Feb 17, the Labor Department said on Thursday. Economists polled by Reuters had forecast 218,000 claims for the latest week.

Claims are hovering at historically low levels, despite high profile layoffs at the start of the year. Unadjusted claims declined 26,053 to 197,932 last week. Claims in California, which were estimated by the state likely because of the holiday shortened week, plunged 8,584.

Aside from California, there were notable decreases in applications in Illinois, Kentucky, Michigan, New York and Texas. Kentucky had seen a jump in filings in the prior week, attributed to layoffs in the automobile manufacturing and wholesale trade industries.

Difficulties finding labor during and after the COVID-19 pandemic have generally left employers reluctant to reduce head count. Worker productivity has also increased while the economy continues to expand despite aggressive rate hikes from the Fed.

Policymakers at last month’s meeting continued to view the labor market as “tight,” but several “noted that recent job gains were concentrated in a few sectors, which, in their view, pointed to downside risks to the outlook for employment.”

Financial markets have pushed back their expectations for the first rate cut from the Fed to June from May. Since March 2022, the central bank has raised its policy rate by 525 basis points to the current 5.25%-5.50% range.

The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of February’s employment report. Claims rose marginally between the January and February survey periods. The economy added 353,000 jobs in January.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 27,000 to 1.862 million during the week ending Feb. 10, the claims report showed.

“Continuing filings have shifted up to a level higher than the 2019 average suggesting job losers are taking longer to find alternate employment,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “But these filings they also are not surging. The labor market remains strong although there is a gradual rebalancing of supply and demand for workers, welcome news for policymakers.”

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