The number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to underlying labour market strength despite a sharp slowdown in job growth in May. But the outlook for the economy continues to darken. Other data on Thursday showed factory activity in the mid-Atlantic region stalled in June, likely reflecting a recent escalation in trade tensions between the United States and China.
The trade war has increased uncertainty over the US economic outlook, prompting the Federal Reserve on Wednesday to signal it could cut interest rates by as much as half a percentage point over the rest of this year. The US central bank kept rates unchanged on Wednesday.
Initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 216,000 for the week ended June 15, the Labour Department said. Economists polled by Reuters had forecast claims would decrease to 220,000 in the latest week.
The Labour Department said no states were estimated. The drop in claims followed three straight weekly increases. Claims are being closely watched for signs of a rise in layoffs stemming from the trade dispute. The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose 1,000 to 218,750 last week.
The claims data covered the survey period for the nonfarm payrolls component of June's employment report. The four-week average of claims was little changed between the May and June survey periods. Still, economists expect payrolls to pick up in June after increasing by 75,000 jobs in May.
Fed Chairman Jerome Powell on Wednesday acknowledged the meagre job gains in May and said "in light of recent developments this bears watching," but also noted that "many labour market indicators remain strong."
Claims have been roughly flat this year, indicating some easing in labour market conditions. Job growth has cooled from the brisk pace in 2018 in line with the economy, which is slowing as the stimulus from last year's massive tax cuts and increased government spending fades.
The Atlanta Fed is forecasting gross domestic product will rise at a 2.0% annualized rate in the second quarter. The economy grew at a 3.1% pace in the January-March quarter, boosted by a temporary burst in exports and an accumulation of inventories.
The surge in exports, together with a decline in imports, helped to shrink the current account deficit in the first quarter to $130.4 billion from $143.9 billion in the fourth quarter, the Commerce Department said in a separate report on Thursday.
A third report on Thursday from the Philadelphia Fed showed its business conditions index dropped to a reading of 0.3 in June from 16.6 in May. There were decreases in measures of new orders, employment and shipments.
A gauge of prices received by manufacturers in the region tumbled to near a three-year low this month. A measure of prices paid by factories was also the lowest in nearly three years. These findings support expectations that inflation will remain muted this year. The sharp braking in manufacturing in the region that covers eastern Pennsylvania, southern New Jersey and Delaware was the latest indication that national factory activity continues to slow. A report from the New York Fed earlier this week showed a record plunge in its Empire State manufacturing index to more than a 2-1/2-year low in June.