WASHINGTON New applications for U.S. jobless benefits fell sharply last week and the number of Americans on unemployment rolls hit a 17-year low, pointing to a tightening labor market that could allow the Federal Reserve to raise interest rates next month.
Other data on Thursday showed a mild improvement in the trade deficit in March, which bodes well for the economy’s prospects in the second quarter. While worker productivity fell in the first quarter, the overall trend is marginally firming.
Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 238,000 for the week ended April 29, the Labor Department said. The decline unwound most of the prior two weeks’ increases, which economists had blamed on volatility arising from the different timings of the Easter holidays and spring breaks.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 113 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the
unemployment rate at a near 10-year low of 4.5 percent.
The Fed on Wednesday kept its benchmark overnight interest rate unchanged and said it expected labor market conditions would “strengthen somewhat further.”
Officials at the U.S. central bank also viewed the pedestrian 0.7 percent annualized economic growth pace in the first quarter as likely “transitory” and expected economic activity to expand at a “moderate” pace. Most economists expect a rate hike next month.
Economists had forecast first-time applications for jobless benefits falling to 247,000 last week. The number of people still receiving benefits after an initial week of aid declined 23,000 to 1.96 million in the week ended April 22, the lowest level since April 2000.
U.S. financial markets were little moved by the data.
PAYROLLS REBOUND EXPECTED
Last week’s claims report has no bearing on April’s employment report, which is scheduled for release on Friday, as it falls outside the survey period. Filings for unemployment benefits were low in April compared to March.
A separate report from global outplacement consultancy Challenger, Gray & Christmas on Thursday showed U.S.-based employers announced 36,602 job cuts in April, down 15 percent from March. The layoffs were concentrated in the retail sector, which has been hit by store closures amid stiff competition from online retailers.
According to a Reuters survey of economists, job growth likely rebounded 185,000 following March’s paltry 98,000 gain, which was the smallest in 10 months.
Separately, the Commerce Department said the trade gap dipped 0.1 percent to $43.7 billion in March as both imports and exports fell. The government reported last week that trade had a neutral impact on the 0.7 percent annualized rise in gross domestic product in the first quarter.
A fourth report from the Labor Department showed nonfarm productivity, which measures hourly output per worker, decreased at a 0.6 percent annualized rate in the first quarter, the weakest in a year.
Productivity increased at a 1.8 percent pace in the fourth quarter. Compared to the first quarter of 2016, productivity increased at a 1.1 percent rate, suggesting a gradual improvement in the productivity trend.
Productivity has increased at an average annual rate of 0.6 percent over the last five years, well below its long-term rate of 2.1 percent from 1947 to 2016.
Some economists believe productivity is being inaccurately measured, especially on the information technology side. Others blame low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio.
Unit labor costs, the price of labor per single unit of output, increased at a 3.0 percent pace in the first quarter after rising at a 1.3 percent rate in the fourth quarter.
Compared to the first quarter of 2016, unit labor costs rose at a 2.8 percent rate.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)
US labor market tightening; productivity weakens in first quarter – Reuters