The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, though the decline was likely exaggerated by the Labor Day holiday, with the underlying trend pointing to continued labor market stability.
The labor market has regained its poise after wobbling through much of summer. That gives the Federal Reserve room to focus on fighting inflation stemming from the Middle East conflict. The U.S. central bank on Wednesday raised interest rates for the first time since July 2023 and flagged further increases in borrowing costs in the months ahead.
"The exceptionally depressed number last week might reflect seasonal adjustment issues related to Labor Day, but the underlying picture remains encouraging," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "For now, then, the Fed will remain laser-focused on inflation."
Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 196,000 for the week ended September 12, the Labor Department said on Thursday. Economists polled by Reuters had forecast 208,000 claims for the latest week. The surprise drop likely reflected volatility around last week's Labor Day holiday. Claims are difficult to adjust for seasonal fluctuations around moving public holidays.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,750 to 203,250 last week. Fed Chairman Kevin Warsh singled out the labor market as "one basic sign of strength," adding that policymakers believed "that the unemployment rate is basically running consistent with full employment." The Fed's overnight benchmark interest rate was hiked by 25 basis points to the 3.75%-4.00% range.
The claims data covered the week during which the government surveyed employers for the nonfarm payrolls component of September's employment report. The four-week average of claims was little changed between the August and September survey weeks, suggesting steady labor market conditions.
Nonfarm payrolls increased by 162,000 jobs in August after job growth slowed sharply in the prior three months. The claims report showed the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, dropped 39,000 to a seasonally adjusted 1.730 million during the week ended September 5. Economists said the so-called continuing claims had also been impacted by seasonal adjustment issues.
"Continuing claims are at similar levels to May 2023, a time when the unemployment rate was only 3.6%," said Abiel Reinhart, an economist at JPMorgan. "The pattern of residual seasonality in continuing claims is different than for initial claims, and continuing claims could edge higher again starting in late September."
The unemployment rate was at 4.1% in August. It is being held down by low layoffs and a smaller labor force. Economists say businesses remain hesitant to boost hiring in the face of headwinds, including the U.S.-Israeli war with Iran, which is driving up oil prices and stoking inflation.
U.S. stocks opened higher as investors took heart from a pullback in oil prices, though they stayed above $100 a barrel on fears the Middle East conflict could widen. The dollar slipped against a basket of currencies. U.S. Treasury yields fell.
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