Rise in US jobless claims spurs labour market worries
The number of Americans filing for unemployment benefits rose to a six-month high last week, suggesting some loss of momentum in the labor market amid a sharp economic slowdown and major stock market selloff.
Another report on Thursday showed factory activity in the mid-Atlantic region improved in January as shipments rebounded, but still contracted for a fifth straight month. That indicates national manufacturing activity remained in the doldrums at the start of this year.
Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 293,000 for the week ended Jan. 16, the highest reading since early July, the Labor Department said. It was the second straight week of gains and confounded economists’ expectations for a drop to 278,000.
“The picture does not look great. Unemployment claims need to come back down in a hurry to make us sure that the jobs market has not lost its edge,” said Chris Rupkey, chief economist at MUFG Union Bank.
While layoffs appear to have picked up a bit in recent weeks, the increases might not suggest a material weakening in labor market conditions as claims data is difficult to adjust around this time of the year.
Claims have now been below the 300,000 mark, which is associated with strong labor market conditions, for 46 straight weeks. That is the longest streak since the early 1970s.
The jump in claims came against the backdrop of a stock market rout that has seen the Standard & Poor’s 500 index .SPX drop 8.4 percent since Dec. 31.
At the same time, data on retail sales, exports, inventories and industrial production have suggested economic growth slowed abruptly at the end of 2015.
The economy has been buffeted by the headwinds of a strong dollar, slowing global demand and relentless spending cuts in the energy sector.
An inventory overhang has also left businesses placing fewer new orders with factories, leading to predictions that fourth-quarter gross domestic product increased at an annual rate of less than 1 percent after expanding at a 2 percent pace in the July-September quarter.
Stocks on Wall Street were trading higher on European Central Bank President Mario Draghi’s comments that the ECB could “review and possibly reconsider” its monetary policy stance when it meets in March.
US Treasuries fell marginally, while the dollar firmed to a two-week high against the euro.
The increase in jobless claims so far this month has been concentrated in oil-producing states like Texas, Louisiana and Alaska. Outside the energy, mining and manufacturing sectors, which have been devastated by a slump in crude oil prices and the impact of a strong dollar, layoffs have been generally low as the labor market approaches full employment.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 6,500 to 285,000 last week, the highest reading since mid-April.
The claims data covered the survey period for January nonfarm payrolls. The four-week average of claims rose 14,250 between the December and January survey periods. While that suggests a drop in payroll gains from December’s robust 292,000 jobs, employment growth in January is expected to top 200,000.
“Our first threshold of concern on payrolls would be a four-week average above 325,000, which would signal to us a significant pickup in layoff activity,” said John Ryding, chief economist at RDQ Economics in New York. “At this point, therefore, the rise in claims is not a concern to us, but we will be watching these data closely over the next few weeks.”
In a separate report, the Philadelphia Federal Reserve said its general activity index rose to -3.5 this month from a reading of -10.2 in December.
The new orders index remained negative, but increased 10 points to -1.4, while the shipments index increased 12 points, its first positive reading in four months. Factories in the mid-Atlantic region continued to report a drop in inventories, as well as shrinking order books and shorter delivery times.
“Slowing global growth and a strong dollar will continue to weigh on the manufacturing sector, but this report suggests
lower odds of another sharp break downwards,” said Jesse Edgerton, an economist at JPMorgan in New York.