WASHINGTON: The number of Americans filing new claims for unemployment benefits fell less than expected last week, suggesting some cooling in the labor market, though conditions remain tight.
The economy’s outlook is darkening, with other data on Thursday showing homebuilding slumping to a 13-month low in May, weighed down by soaring mortgage rates and building material prices. Manufacturing also appears to be losing speed. The economy’s waning momentum comes as the Federal Reserve is aggressively raising interest rates to fight inflation.
The latest batch of economic data followed on the heels of news this week of a surprise decline in retail sales last month, and could amplify fears of a recession. The Fed on Wednesday raised its policy interest rate by three-quarters of a percentage point, the biggest hike since 1994.
“The risk of a hard landing for the US economy has grown exponentially,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed’s aggressive and abrupt policy tightening may soon be criticized for letting in the winds of recession.”
Initial claims for state unemployment benefits slipped 3,000 to a seasonally adjusted 229,000 for the week ended June 11. Economists polled by Reuters had forecast 215,000 applications for the latest week.
US retail sales post first decline in five months as inflation bites
The decline partially reversed the prior week’s jump, which had lifted filings close to a five-month high, and was blamed on seasonal fluctuations around moving holidays like Memorial Day.
Significant increases in claims were reported in California, Ohio, Illinois and Michigan. Claims fell in Missouri.
There has been a steady rise in reports of job cuts mostly in the technology and housing sectors. Still, claims have remained locked in a tight range since plunging to a more than a 53-year low of 166,000 in March.
Fed Chair Jerome Powell told reporters on Wednesday that “the labor market has remained extremely tight,” and that “labor demand is very strong.” The US central bank has increased the overnight rate by 150 basis points since March.
“For now, supply and demand mismatches will keep filings low,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “But the level could start to trend up as the Fed continues to remove policy accommodation to slow demand.”
US stocks opened sharply lower. The dollar fell against a basket of currencies. US Treasury yields rose.
Labor Market Tight
The claims report showed the number of people receiving benefits after an initial week of aid increased 3,000 to 1.312 million during the week ending June 4. There were 11.4 million job openings at the end of April.
Higher borrowing costs are combining with record high home prices to chill the housing market. This could help to bring housing demand and supply back into alignment and lower prices.
Biden warns US inflation could last ‘for a while’
A separate report from the Commerce Department on Thursday showed housing starts plunged 14.4% to a seasonally adjusted annual rate of 1.549 million units last month, the lowest level since April 2021. Economists had forecast starts would slide to a rate of 1.701 million units.
Permits for future homebuilding declined 7.0% to a rate of 1.695 million units. A survey on Wednesday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index hit a two-year low in June, with a gauge of prospective buyer traffic falling below the break-even level of 50 for the first time since June 2020.
Single-family housing starts, which account for the biggest share of homebuilding, tumbled 9.2% to a rate of 1.051 million units last month, the lowest since August 2020.
Single-family homebuilding rose in the Northeast, but fell in the Midwest, South and West regions.
The 30-year fixed-rate mortgage jumped 25 basis points last week to an average of 5.65%, the highest level since November 2008, according to data from the Mortgage Bankers Association.
Building permits for single-family homes declined 5.5% to a rate of 1.048 million units, the lowest since July 2020.
Starts for housing projects with five units or more dived 26.8% to a rate 469,000 units. Multi-family housing permits dropped 10.0% to a rate of 592,000 units.
The number of houses approved for construction that are yet to be started increased 0.7% to 283,000 units. The single-family housing backlog was unchanged at 152,000. These will eventually become starts and help to underpin residential construction.
“Mortgage rates north of 6% are likely sufficient to cool the housing market, which isn’t necessarily a bad thing,” said Ryan Sweet, an economist at Moody’s Analytics in West Chester, Pennsylvania.
“The housing market was red-hot, and that wasn’t sustainable.”
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