The number of Americans filing for unemployment benefits unexpectedly fell last week, hitting its lowest level since 1973, suggesting an apparent sharp slowdown in economic growth in the first quarter could be temporary.
While another report on Thursday showed a mild weakening in factory activity in the mid-Atlantic region in April, manufacturers were fairly upbeat about business prospects in the next six months. This, together with labor market buoyancy bodes well for a pickup in economic growth in the second quarter.
“The labor market continues to improve. If the apparent slowing in GDP in the first quarter was truly a sudden change in trend, we should have seen something happen in claims by now,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Initial claims for state unemployment benefits declined 6,000 to a seasonally adjusted 247,000 for the week ended April 16, the lowest reading since November 1973, the Labor Department said. Economists polled by Reuters had forecast claims rising to 263,000 in the latest week.
Jobless claims have now been below 300,000, a threshold associated with healthy labor market conditions, for 59 weeks, the longest stretch since 1973. Labor market strength comes despite signs that growth stumbled in the first quarter.
The economy has been hurt by a strong dollar and weak global demand, which have eroded exports. Lower oil prices are also a constraint, as they have undercut the profits of energy firms, forcing them to slash spending on capital projects.
There is also a tendency for reported growth to weaken in the first three months of the year because of measurement challenges, which have been acknowledged by the government.
First-quarter gross domestic product growth estimates are currently as low as a 0.2 percent annualized rate. The economy grew at a 1.4 percent rate in the fourth quarter.
Strengthening Labor Market
With growth weak and inflation benign, labor market strength is probably not enough to nudge the Federal Reserve away from its policy of raising interest rates at a gradual pace.
The Fed lifted its benchmark overnight interest rate in December for the first time in nearly a decade and policymakers recently forecast only two more rate hikes this year.
In a separate report, the Philadelphia Federal Reserve said its business conditions index fell to -1.6 this month from a reading of 12.4 in March. But the survey’s indicators of future activity showed continued improvement — with rising expectations for increases in orders, shipments and factory jobs.
The dollar rose marginally against a basket of currencies, while prices for U.S. government debt fell. U.S. stocks were little changed.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 4,500 to 260,500 last week.
The claims report covered the survey week for April nonfarm payrolls. The four-week average of claims rose 1,000 between the March and April survey periods, implying another strong month of employment gains. Payrolls increased 215,000 in March.
“This continued strength in the labor market supports our forecast for a modest rebound in consumer spending growth in the second quarter, but it also suggests that wage and inflation pressures will continue to build,” said Jesse Edgerton, an economist at JPMorgan in New York.
The claims report also showed the number of people still receiving benefits after an initial week of aid dropped 39,000 to 2.14 million in the week ended April 9, the lowest level since November 2000. The four-week average of the so-called continuing claims was also the lowest since November 2000.