The number of Americans filing new claims for unemployment benefits increased last week and unit labour costs rose by less than previously thought in the first quarter, indicating the labour market is cooling but not enough to allay the Federal Reserve’s hesitance to begin cutting interest rates.
Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 229,000 for the week ended June 1, the Labor Department said on Thursday. Economists polled by Reuters had forecast 220,000 claims in the latest week.
The labour market has been steadily rebalancing back toward pre-pandemic levels after the Fed raised interest rates by roughly 525 basis points since March 2022 to slow demand in the overall economy.
The so-called continuing claims tracking those who collect benefits beyond the first week increased 2,000 to a seasonally adjusted 1.792mn during the week ending May 25.
“The level (of weekly jobless claims) remains in a range that suggests the labour market remains tight,” said Thomas Simons, US economist at Jefferies. “Continuing claims are still very low by any historical standard, and we still see the data as supporting the notion that people who lose a job are able to find a new one with relative ease.”
Data this week showed US job openings in April fell more than expected and the number of available jobs per job-seeker reached its lowest level since June 2021.
Yields on US Treasury securities and US stocks were little changed following the jobless claims data, a day after a rally in tech stocks drove the S&P 500 and Nasdaq Composite indices to all-time highs. The U.S dollar was largely flat against a basket of currencies.
Earlier on Thursday, US employers announced the fewest job cuts last month since December and layoff announcements so far in 2024 are running behind last year’s pace, according to data from outplacement firm Challenger, Gray and Christmas.
Employers announced 63,816 cuts in May, a 1.5% decrease from the 64,789 cuts announced in April and down about 20% from the 80,089 cuts announced a year earlier. Year-to-date layoff announcements are 7.6% lower than in the first five months of 2023.
US worker productivity grew slightly less than previously estimated in the first quarter but exceeded market expectations, and unit labour costs rose by less than first thought, data from the Labor Department also showed on Thursday.
Nonfarm productivity, which measures hourly output per worker, increased at a 0.2% annualised rate in the first quarter, revised down from an initial estimate of 0.3% one month ago. Economists polled by Reuters had estimated a revision down to 0.1%.
Unit labour costs rose at a 4.0% annualised rate, down from the first estimate of 4.7%. Economists had projected labour costs to be revised up to 4.9%.
Productivity accelerated and labour costs were subdued through much of 2023, ending at 3.5% and unchanged, respectively, in the fourth quarter. At the time, that had been seen as one of the arguments favouring Fed rate cuts in 2024 as it was hoped improved worker efficiency would dampen inflation.
The near stalling of productivity in the first quarter did not further that cause, though some economists had cautioned after the initial Labor Department estimate was published last month that the data had been influenced by a seasonal quirk and the trend of improving productivity might still hold up.
Downward revisions to hours worked and output growth were the main factors behind the slight downward revision to overall productivity, while unit labour costs grew substantially less than first estimated. At 2.9%, however, the year-over-year increase in productivity was nearly twice the average since the Covid-19 recession in early 2020.
“(T)he big picture remains that productivity growth has been strong over the past few years, which is helping to contain growth in labour costs,” said Michael Pearce, deputy chief US economist at Oxford Economics. “In time, that should feed through to a further decline in inflation.”
Elsewhere, the Commerce Department reported the US trade deficit widened in April as a jump in imports outpaced a slight increase in exports, which is likely to dampen economic growth in the second quarter.
The trade deficit increased 8.7% to $74.6bn, the Commerce Department’s Bureau of Economic Analysis said on Thursday, the largest since October 2022. Data for March was revised to show the trade gap narrowing slightly to $68.6bn instead of the previously reported $69.4bn.
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