The number of Americans filing for unemployment benefits fell last week, pointing to a tightening labour market that likely keeps the Federal Reserve on course to announce plans next month to start reducing its massive bond portfolio. Labour market strength was also underscored by another report on Thursday showing US-based employers last month announced the fewest job cuts in eight months. But a moderation in services sector activity to an 11-month low in July put a wrinkle in the brightening economic outlook.
The services sector accounts for more than two-thirds of the US economy and analysts worry that the slowdown, if sustained, could keep inflation tame. "The services economy is cooling, which makes the Fed's goal of 2 percent inflation a little harder to achieve," said Chris Rupkey, chief economist at MUFG in New York. "But with the labour market tight, the Fed can continue mopping up the stimulus provided to fight the financial crisis and recession."
Initial claims for state unemployment benefits decreased 5,000 to a seasonally adjusted 240,000 for the week ended July 29, the Labour Department said. Economists had forecast claims falling to 242,000. Claims have now been below 300,000, a threshold associated with a healthy labor market, for 126 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labour market is near full employment, with the jobless rate at 4.4 percent.
The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, fell 2,500 to 241,750 last week, the lowest level since May. Economists believe that labour market tightness will encourage the Fed to announce a plan to start offloading its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.
The US central bank is, however, expected to delay raising interest rates until December because of low inflation. The Fed has raised rates twice this year. The claims data has no bearing on July's employment report, which is scheduled to be released on Friday, as it falls outside the survey period.
According to a Reuters survey of economists, nonfarm payrolls probably increased by 183,000 jobs last month after surging by 222,000 in June. The unemployment rate is seen falling one-tenth of a percentage point to 4.3 percent. In a separate report on Thursday, global outplacement consultancy Challenger, Gray & Christmas said US-based employers announced 28,307 job cuts last month, down 9 percent from June and the fewest number since November 2016. Retailers planned to cut 3,862 jobs in July. They were closely followed by the healthcare products and services sector where employers planned 3,634 layoffs.
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