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

  • Weekly jobless claims rose 2,000 to 216,000
  • Continuing claims dropped 6,000 to 1.672 million
  • Third quarter GDP growth revised up to 3.2%

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

The strength of the labor market, also highlighted by a drop in unemployment in early December after rising sharply 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 tackles inflation. . The US central bank is trying to cool demand for everything from housing to jobs to bring inflation back to its 2% target.

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

Initial claims for federal jobless benefits rose by 2,000 to an adjusted 216,000 during the week ending Dec. 17, leaving much of the decline from the previous week, Labor Department data showed Thursday.

Economists polled by Reuters had forecast 222,000 claims last week. Claims have fluctuated up and down in recent weeks, but remained below the 270,000 mark, which economists say would raise a red flag for the labor market.

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Layoffs in the technology sector and interest rate-sensitive industries such as housing have not had an impact on claims so far. Unadjusted claims fell 4,064 to 247,867 last week, amid big declines in California, Indiana, Ohio and Texas, which offset big increases in Massachusetts.

Fed chairman Jerome Powell said last week that “it sounds like we’re short on staff.” The Fed last Wednesday raised the policy rate by 50 points in the 4.25%-4.50% range, the highest since the end of 2007. Fed officials expect the rate to rise between 5.00% and 5.25% next year.

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

The claims data includes the period in which the government surveyed business establishments in the nonfarm payrolls sector in the December employment report.

Claims fell moderately between the November and December survey weeks, suggesting another month of solid employment gains. Job growth has been 392,000 per month this year. Data next week on the number of people on the unemployment rolls will provide more clues about the employment situation in December.

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Economists believe that companies may cut back on hiring before they begin layoffs. Employers have been reluctant to lay off workers after struggling to find work during the COVID-19 pandemic.

The claims report showed the number of people receiving benefits after the first week of aid fell by 6,000 to 1.672 million in the week ending Dec. So-called ongoing claims, a proxy for employment, have been trending higher since early October.

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Despite the recent increase, ongoing claims are about 150,000 lower than they were this time in 2019, which some economists say suggests the labor market is far from relaxed.

“With claims continuing to be so low, there is a small pool of ‘potential’ workers who can be hired for jobs,” said Isfar Munir, chief economist at Citigroup in New York.

“While this may reflect a larger-than-usual number of people who have left the unemployment benefits system, it ultimately does not help to free the economy unless these people choose to return to work.”

Some economists, however, believe that the eight-month unemployment rate of 1.2% was a warning sign for businesses to hire new workers as they look for a recession next year.

However, the strength of the labor market helps support the economy by generating strong income gains, which contribute to higher consumer spending.

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

Gross domestic product rose 3.2% year-on-year in the last quarter, the government said in its third GDP estimate. That was revised up from the 2.9% pace reported last month. The economy shrank by 0.6% in the second quarter.

The upward revision of GDP in the last quarter reflected improvements in consumer spending, business investment and government and local government spending. Domestic demand was also revised upwards to show moderate growth instead of weakness.

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But the housing market downturn was deeper than previously anticipated, with residential investment contracting for six straight quarters, the longest since the 2006 housing market crash.

Reuters graphics

Sixteen of the 22 industries contributed to the recovery in GDP, led by information, professional, scientific and technical services as well as mining, retail trade and real estate, rental and leasing. Construction accounted for the largest share of GDP followed by utilities and the financial and insurance industries.

Reuters graphics

Fourth quarter growth estimates are up to a 2.7% pace, with consumers lifting the burden, supported by savings accumulated during the pandemic.

Inflation-adjusted household income rose in the third quarter for the first time in a while as price pressures eased. Business spending on equipment has also remained steady.

Still, a recession is more likely next year as the strength of the labor market raises the prospect of inflation, especially reducing household wealth, which is being squeezed by falling stock markets and housing prices. Consumers are also driving down their savings and a strong dollar will hurt exports.

The third report showed the Conference Board’s leading indicator, a gauge of the upcoming US economy, fell for the ninth month in November.

Reuters graphics

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

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

Our standards: The Thomson Reuters Trust Principles.

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