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US weekly jobless claims drop to eight-month low; labor market remains tight

Published Sep 21, 2023 08:44AM ET Updated Sep 21, 2023 05:47PM ET
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© Reuters. Hundreds of people line up outside the Kentucky Career Center, over two hours prior to its opening, to find assistance with their unemployment claims, in Frankfort, Kentucky, U.S. June 18, 2020. REUTERS/Bryan Woolston
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By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits dropped to an eight-month low last week, pointing to persistent labor market tightness even as job growth is cooling.

The report from the Labor Department on Thursday also showed unemployment rolls in early September were the smallest since January. It was published a day after the Federal Reserve held interest rates steady but stiffened its hawkish stance, with a further rate increase projected by the end of the year and monetary policy to be kept significantly tighter through 2024 than previously expected.

"This economy is just not showing any sign of slowing down which hints that inflation will not be coming back down to target," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The Fed was wise to keep another interest rate hike in their back pockets just in case, and it now looks like another rate hike is warranted."

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 201,000 for the week ended Sept. 16, the lowest level since January. Economists polled by Reuters had forecast 225,000 claims for the latest week. Claims are in the lower end of their 194,000-265,000 range for this year.

Claims could, however, increase in the coming weeks as a partial strike by the United Auto Workers (UAW) union forces automobile manufacturers to temporarily lay off workers because of shortages of some materials.

The UAW last week launched a targeted strike against Ford (NYSE:F), GM and Stellantis (NYSE:STLA), impacting one assembly plant at each company. It has threatened to broaden the work stoppages, which for now only involve about 12,700 of the affected 146,000 UAW members.

Though striking workers are not eligible for unemployment benefits, the walkout has snarled supply chains.

Ford has furloughed 600 workers who are not on strike, while GM expected to halt operations at its Kansas car plant, affecting 2,000 workers. Chrysler parent Stellantis said it would temporarily lay off 68 employees in Ohio and expects to furlough another 300 workers in Indiana.

Unadjusted claims rose by only 67 to 175,661 last week. There were notable declines in filings in Indiana and California, which mostly offset sizeable increases in South Carolina, New York and Georgia.

Fed Chair Jerome Powell said on Wednesday that "the labor market remains tight, but supply and demand conditions continue to come into better balance."

Employment growth has been slowing and job openings falling. Labor market resilience is propping up the economy even as recession fears linger. The leading indicator, a gauge of future U.S. economic activity, fell 0.4% in August after dropping 0.3% in July, the Conference Board said in a second report on Thursday.

It has dropped for 17 straight months. Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

The claims data together with the Fed's hawkish stance pushed stocks on Wall street lower. The dollar gained versus a basket of currencies. U.S. Treasury prices fell, with the yield on the benchmark 10-year bond rising to a nearly 16-year high.


The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of September's employment report.

The strike is unlikely to have an impact on payrolls as it started towards the end of the survey week. Workers most likely received pay for that week. Claims fell between the August and September survey period.

Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will offer more clues on the state of the labor market in September.

The so-called continuing claims declined 21,000 to 1.662 million during the week ending Sept. 9, also the lowest level since January, the claims report showed. That suggests laid-off workers are quickly finding employment.

While the labor market remains unbowed, the housing market is faltering after showing signs of stabilizing earlier this year as mortgage rates resume their upward trend in tandem with the 10-year Treasury note, which has spiked on worries soaring oil prices could hamper the Fed's fight against inflation.

Existing home sales slipped 0.7% last month to a seasonally adjusted annual rate of 4.04 million units, the National Association of Realtors said in a third report.

Existing home sales are counted at the closing of a contract. Last month's sales likely reflected contracts signed in July, before the recent run-up in mortgage rates, which lifted the rate on the popular 30-year fixed mortgage above 7%.

Home sales last month were restrained by persistently tight supply, with inventory falling 14.1% from a year earlier to 1.1 million, the lowest on record for any August.

As a result, the median house price accelerated 3.9% from a year earlier to $407,100, the fourth-highest reading. It hit a record $413,000 in June 2022.

"The prospects for improved sales in the coming months look bleak," said Ben Ayers, senior economist at Nationwide in Columbus, Ohio. "2023 could end in a whimper for the real estate sector as any substantial pull-back in rates is likely far off into 2024."

News on manufacturing was downbeat. Manufacturing together with housing have borne the brunt of the Fed's aggressive monetary policy tightening.

A fourth report from the Philadelphia Fed showed factory activity in the mid-Atlantic region slumped in September. Firms in the region that covers eastern Pennsylvania, southern New Jersey and Delaware reported decreases in new orders and shipments. They continued to report a decline in employment.

The Philadelphia Fed's business conditions index fell to -13.5 this month from 12.0 in August. It was the index's 14th negative reading in the past 16 months.

"Softer demand for goods and higher borrowing costs are hurdles for activity," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. "But re-shoring of supply chains, infrastructure projects and a stabilization in demand could provide support to manufacturing output over time."

US weekly jobless claims drop to eight-month low; labor market remains tight

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Comments (1)
Larry Langley
Larry Langley Sep 21, 2023 4:41PM ET
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Seasonal hire until end of the year. Public knowledge in company's ads, and why kept employees.
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