New applications for US jobless benefits fell sharply last week and the number of Americans on unemployment rolls hit a 17-year low, pointing to a tightening labour market that could allow the Federal Reserve to raise interest rates next month.
While other data yesterday showed worker productivity fell in the first quarter, the overall trend is improving.
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.
“Firms remain extremely reluctant to lay off labour.
There is nothing here that changes our views and the labour market data remain supportive of a further rate increase in June,” said John Ryding, chief economist at RDQ Economics in New York.
The Fed on Wednesday kept its benchmark overnight interest rate unchanged and said it expected labour market conditions would “strengthen somewhat further.” Officials at the US central bank also viewed the pedestrian 0.7% annualised economic growth pace in the first quarter as likely “transitory” and expected economic activity to expand at a “moderate” pace.
Jobless claims have now been below 300,000, a threshold associated with a healthy labour market, for 113 straight weeks.
That is the longest such stretch since 1970, when the labour market was smaller.
The labour market is close to full employment, with the unemployment rate at a near 10-year low of 4.5%. 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 1.96mn in the week ended April 22, the lowest level since April 2000.
The dollar fell slightly against a basket of currencies.
Prices for US Treasuries fell as did stocks on Wall Street.
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 yesterday showed US-based employers announced 36,602 job cuts in April, down 15% 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.
In another report, the Labor Department said nonfarm productivity, which measures hourly output per worker, decreased at a 0.6% annualised rate in the first quarter, the weakest in a year.
Productivity increased at a 1.8% pace in the fourth quarter.
Compared to the first quarter of 2016, productivity increased at a 1.1% rate, suggesting a gradual improvement in the productivity trend.
Productivity has increased at an average annual rate of 0.6% over the last five years, well below its long-term rate of 2.1% from 1947 to 2016.
“The trend in productivity has been very soft in recent years and we are pessimistic about prospects for a meaningful pickup in productivity, in large part because we are likely in a mature stage of the expansion,” said Daniel Silver, an economist at JPMorgan in New York.
Unit labour costs, the price of labour per single unit of output, increased at a 3.0% pace in the first quarter after rising at a 1.3% rate in the fourth quarter.
Compared to the first quarter of 2016, unit labour costs rose at a 2.8% rate, suggesting wage growth was picking up.
A fourth report from the Commerce Department showed the trade gap dipped 0.1% to $43.7bn in March as both imports and exports fell.
The weakness in exports suggests a softening in global growth, while sluggish domestic demand is weighing on imports.
In another report, the department said new orders for US-made goods increased for a fourth straight month in March and orders for capital equipment were stronger than previously reported.
That suggests a sustained recovery in the manufacturing sector.
A job seeker (right) speaks with a representative at the Laconia Job & Resource Fair, hosted by the New Hampshire Employment Security, at Belknap Mall in Belmont, New Hampshire. The US labour market is close to full employment, with the unemployment rate at a near 10-year low of 4.5%.
