Weekly US jobless claims fall to nine-month low; productivity is gaining momentum

WASHINGTON, Feb 2 (Reuters) – The number of Americans filing new claims for jobless benefits fell to a nine-month low last week as the labor market remained resilient despite higher borrowing costs and growing fears of a recession this year.

A surprise drop in weekly jobless claims reported by the Labor Department on Thursday boosted cautious optimism that the economy may overcome a recession or simply experience a shallow and brief decline. Federal Reserve Chairman Jerome Powell told reporters on Wednesday that “the economy could return to 2 percent inflation without a really significant decline or a really big increase in unemployment.”

“Someday soon, economists will have to drop those calls for a recession in 2023 because the labor market refuses to budge from the lowest unemployment rate in decades,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Initial claims for state jobless benefits fell 3,000 to a seasonally adjusted 183,000 for the week ended Jan. 28, the lowest level since April 2022. It was the third straight weekly decline in claims. Economists polled by Reuters had forecast 200,000 claims for the past week.

Unadjusted claims fell by 872 to 224,356 last week. There were notable declines in filings in Kentucky, California and Ohio, offsetting increases in Georgia and New York.

Applications have declined this year in line with a persistently tight labor market. The government reported on Wednesday that there were 11 million job openings at the end of December, up 1.9 openings for everyone unemployed.

“The labor market has not yet reacted meaningfully to the rapid rise in interest rates,” said Rubila Faruqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

Outside of the technology industry and interest rate-sensitive sectors such as housing and finance, employers have been reluctant to lay off workers after struggling to find labor during the pandemic and also because they are optimistic that economic conditions will improve more late this year.

A report from the Institute for Supply Management on Wednesday said manufacturers “indicate they will not significantly reduce headcount as they are positive around the second half of the year.”

Wall Street stocks were trading higher. The dollar rose against a basket of currencies. US Treasury yields fell.

TIGHT LABOR MARKET

The US central bank on Wednesday raised its interest rate by 25 basis points to a range of 4.50%-4.75% and promised “continued increases” in borrowing costs.

The claims report showed that the number of people receiving benefits after an initial week of employment-replacement assistance fell by 11,000 to 1.655 million in the week ending Jan. 21. This partly revised the increases registered in the previous two weeks in the so-called called continuing claims.

The claims data is not relevant to the January employment report scheduled for release on Friday, as it falls outside the survey period. Nonfarm payrolls likely rose by 185,000 jobs last month, according to a Reuters poll of economists.

The economy added 223,000 jobs in December. The unemployment rate rose to 3.6 percent from a more than 50-year low of 3.5 percent in December.

A series of layoffs in the tech sector led to job cuts in January. A separate report Thursday from global relocation firm Challenger, Gray & Christmas showed job cuts announced by U.S.-based employers jumped 136 percent to 102,943. That was the highest January total since 2009.

The technology sector accounted for 41% of job cuts, with 41,829 layoffs. Retailers announced 13,000 job cuts, while financial firms planned to lay off 10,603 workers.

“It’s hard to square the seemingly contrasting messages from the jobless claims data and the Challenger job cuts data,” said Daniel Silver, an economist at JPMorgan in New York. “One possible explanation for the recent divergence is that people are being laid off but not filing for unemployment insurance. This may be because people find new jobs easily or because benefits delay eligibility for unemployment benefits.”

Despite the tightening labor market, wage inflation is slowing and may continue to do so, as a third Labor Department report showed worker productivity accelerated 3.0% year over year in the fourth quarter, the most the fastest in a year, after rising 1.4% in the third quarter.

Output fell 1.5% from a year ago and is set to fall 1.3% in 2022. But that’s largely due to distortions caused by the COVID-19 pandemic. Productivity was up 5.1% from the fourth quarter of 2019.

As a result, unit labor costs – the cost of labor per unit of output – rose at a rate of 1.1%. This was the smallest increase since the first quarter of 2021 and followed a 2.0% growth rate in the third quarter. Although unit labor costs rose 4.5% from a year ago, they were below their peak of 7.0% in the 12 months to the second quarter of 2022.

“The result is that even without a rise in the unemployment rate and with suspiciously resilient jobs, the labor market no longer appears to be a significant source of inflationary pressure,” said Paul Ashworth, chief North American economist at Capital Economics in Toronto.

Reporting by Lucia Muticani; Editing by Andrea Ricci

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