The number of Americans filing new claims for unemployment benefits fell last week as demand for labor remained strong, positioning the economy for another month of solid job gains.
Unemployment benefit rolls were the smallest in 52 years in early March, the Labor Department’s weekly jobless claims report on Thursday also showed. Signs of the economy’s underlying strength against the backdrop of rising inflation and geopolitical tensions were also evident in other reports showing an acceleration in manufacturing production last month and a sharp rebound in homebuilding.
The Federal Reserve on Wednesday raised its policy interest rate by 25 basis points, the first hike in more than three years, and laid out an aggressive plan to push borrowing costs to restrictive levels by 2023. The U.S. central bank said Russia’s war against Ukraine was “likely to create additional upward pressure on inflation and weigh on economic activity.”
“The Russian invasion of Ukraine adds some uncertainty to the outlook as energy prices have spiked, and business and consumer sentiment has taken a hit,” said Dante DeAntonio, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “However, we expect firms to mostly look beyond the near-term volatility, especially given the difficult hiring environment that remains.”
Initial claims for state unemployment benefits decreased 15,000 to a seasonally adjusted 214,000 for the week ended March 12. Economists polled by Reuters had forecast 220,000 applications for the latest week. A 16,006 drop in claims in New York erased notable increases in Michigan, California and Ohio.
Claims have declined from a record high of 6.149 million in early April 2020. The three-week old Russia-Ukraine war poses a risk to the U.S. labor market through disruptions of supply chains and record high gasoline prices. With companies hungry for labor, economists are optimistic the labor market and economy will ride out the storm.
There were 11.3 million job openings at the end of January, with a record 1.8 open positions per unemployed person. This misalignment between demand for labor and supply is boosting wage growth, which should provide some cushion to households against soaring gasoline prices.
Fed Chair Jerome Powell on Wednesday described the labor market as “extremely” tight, telling reporters that “we think this labor market can handle, as I mentioned, tighter monetary policy, and the overall economy can as well.”
So far, the economy is holding up. A second report from the Philadelphia Fed on Thursday showed factory activity in the mid-Atlantic region accelerated in March, with manufacturers reporting strong growth in new orders as well as shipments.
Factories in the region encompassing eastern Pennsylvania, southern New Jersey and Delaware hired more workers and increased hours for employees. They, however, continued to struggle with higher input prices and delays getting materials, which kept order backlogs long.
Strong manufacturing was also underscored by a third report from the Fed showing production surged 1.2% in February, despite motor vehicle output sinking 3.5% because of a continued global shortage of electronic components.
“The impact of Russia’s invasion of Ukraine, while mostly not reflected in this February report, could worsen supply problems, but our analysis suggests only minimal direct exposure for manufacturing,” said Shannon Seery, an economist at Wells Fargo in New York.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
STRONG HOMEBUILDING
Last week’s claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of March’s employment report. Claims fell considerably between the February and March survey periods, which bodes for job growth this month.
The economy created 678,000 jobs in February. Employment growth has been aided by the return of some workers to the labor force amid a significant decline in COVID-19 infections.
More could rejoin the workforce this month. The claims report showed the number of people receiving benefits after an initial week of aid dropped 71,000 to 1.419 million during the week ended March 5, the lowest since February 1970.
The run on upbeat data was extended by a fourth report from the Commerce Department showing housing starts jumped 6.8% to a seasonally adjusted annual rate of 1.769 million units in February, the highest level since June 2006
While permits for future homebuilding fell 1.9% to a rate of 1.859 million units, they were not too far from the nearly 16-year high touched in January, suggesting an acute shortage of houses will continue to underpin residential construction even as mortgage rates rise.
Single-family housing starts, which account for the biggest share of homebuilding, jumped 5.7% to a rate of 1.215 million units last month. Starts for housing projects with five units or more gained 0.8% to a rate of 501,000.
The backlog of houses approved for construction that are yet to be started hit a record 273,000 units as builders struggle with shortages and very expensive materials.
“The record high number of units that were authorized but not started, combined with the permits data, suggests that housing construction will continue to add to growth in the coming months, to the extent that builders can contend with supply constraints,” said Conrad DeQuadros, senior economist at Brean Capital in New York.
In the wake of the data, the Atlanta Fed raised its estimate for first-quarter GDP growth to a 1.3% annualized rate from a 1.2% pace. It has been steadily boosting its forecast from as low as a 0.5% rate of contraction at the end of February. The economy grew at a robust 7.0% pace in the fourth quarter.
