By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits rose slightly last week, indicating no material change in the labor market and reinforcing views that hurricanes and strikes have brought job growth to a near halt in October.
Although the labor market has eased, wage pressures show no significant cooling, casting a shadow over inflation and the outlook for interest rates. Unit labor costs rose at a solid clip in the third quarter, other Labor Department data showed Thursday.
Economists said the rise in labor costs, which was accompanied by a sharp upward revision to second-quarter data, was not in line with inflation returning and staying within the Federal Reserve’s 2% target. The US central bank is expected to cut interest rates by 25 basis points on Thursday, lowering the policy rate to a range of 4.50%-4.75%.
“Growth in unit labor costs is the biggest determinant of the price of labor-intensive core services,” said Paul Ashworth, chief economist for North America at Capital Economics. “Unless unit labor costs rise again, it will become more difficult for Fed officials to claim that inflation can be kept at 2%.
Initial claims for state jobless benefits increased by 3,000 to a seasonally adjusted 221,000 for the week ended Nov. 2, the Labor Department said. Economists polled by Reuters had estimated 221,000 claims for the latest week.
Unadjusted claims rose by 10,827 to 212,274 last week. He was driven by a jump of 4,278 in California. Applications rose by 3,563 in Michigan and by 1,927 in Ohio, more than offsetting significant drops in Florida and Georgia.
Employment growth slowed sharply last month, with nonfarm payrolls rising by just 12,000, the smallest since December 2020. That matched a rise in claims in early October as Hurricane Helene disrupted economic activity in the Southeast US region. Applications remained up in the middle of last month after Hurricane Milton hit Florida.
A strike by factory workers at Boeing (NYSE:), which forced the planemaker to implement rolling furloughs, also weighed on payrolls in October. Disruption from the hurricane has largely faded and striking workers have returned to work after agreeing to new contracts this week, paving the way for accelerated job growth in November.
“New claims signal a weak October payrolls print may be an aberration driven by storms and strikes and we should see a rebound in November,” said Abiel Reinhart, economist at JPMorgan.
INFLATION IS BACK IN FOCUS
The number of people receiving benefits after the first week of aid, a proxy for hiring, rose 39,000 to a seasonally adjusted 1.892 million in the week ending Oct. 26, the claims report showed.
“The loss of the Boeing strike will reduce the number of ongoing claims during next week’s report,” said Carl Weinberg, chief economist at High Frequency Economics. “There is no call for radical monetary easing in today’s numbers, or in any labor market indicator.”
The Fed kicked off its policy easing cycle with an unusually large rate cut of half a percentage point in September, the first reduction in borrowing costs since 2020. It is raising rates by 525 basis points in 2022 and 2023 to prevent high inflation.
Stocks on Wall Street are trading higher. The dollar fell against currency sellers.
US Treasury yields rose as investors continued to digest Donald Trump’s victory in the US presidential election which fueled fears that economic policies could lead to inflation.
Concerns about inflation were heightened by a separate report from the Department of Labor’s Bureau of Labor Statistics that showed unit labor costs – the price of labor per unit of output – rose at an annual rate of 1.9% in the July-September quarter after upward revisions. 2.4% pace of expansion in the second quarter.
Economists had expected labor costs to rise at a 1.0% rate after a 0.4% increase previously reported in the second quarter.
The revision reflected an annual upgrade to national accounts data published in September, which showed stronger earnings and overall economic growth than previously thought.
Labor costs increased at a rate of 3.4% from a year ago, from a revised 3.2% in the second quarter.
Labor costs, however, were revised down by 0.6 percentage points to 2.2% in 2023. They rose to 5.1% in 2022, down from the previously reported 5.7%. But they started to pick up.
“Chairman (Jerome) Powell and others at the Fed have essentially stated that the labor market is no longer an upward influence on inflation,” said Stephen Stanley, chief US economist at Santander (BME:) US Capital Markets. “The data suggest that this sanguine view may be premature.”
Nonfarm productivity, which measures hourly output per worker, rose at a 2.2% rate last quarter after a downward revision of 2.1% growth in the April-June quarter. Productivity was previously forecast to increase at a rate of 2.5% in the second quarter. It increased at a pace of 2.0% from a year ago.
Productivity increased at a rate of 1.9% from the first quarter of 2018 to the second quarter of 2024, revised from the 1.7% previously estimated. It has been revised higher in each of the past three years, and has helped support the economy.
“Businesses continue to invest in technology that will make existing employees more productive,” said Gus Faucher, chief economist at PNC Financial (NYSE: ). “Artificial intelligence that has been growing for a long time has a lot of potential to improve productivity.”
