U.S. Weekly Jobless Claims Decline Further As Labor Market Tightens

The number of Americans filing new claims for unemployment benefits dropped to their lowest level this year last week, while layoffs declined sharply in February, indicating that the labor market recovery was gaining steam.

The upbeat reports on Thursday bode well for February's employment report on Friday. Economists are anticipating another month of solid job growth, with the Omicron COVID-19 variant wave of infections significantly diminished.

"Jobless claims at a new low since Omicron are a signal of a stronger employment report tomorrow where the labor market is leaving its pandemic woes behind it," said Christopher Rupkey, chief economist at FWDBONDS in New York.

Initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 215,000 for the week ended Feb. 26, the lowest level since Jan. 1, the Labor Department said. Economists polled by Reuters had forecast 225,000 applications for the latest week.

The second straight weekly decline in claims pulled them further away from the 290,000 level in mid-January.

Unadjusted claims dropped 21,285 to 194,693 last week, led by big declines in California and Michigan, which offset a jump in filings in Massachusetts and Rhode Island.

With a near record 10.9 million job openings at the end of December, companies are holding on to their workers.

Claims could soon fall back below 200,000. They were last below this level in early December.

Claims have dropped from a record high of 6.149 million in early April 2020. The number of people receiving benefits after an initial week of aid edged up 2,000 to 1.476 million during the week ended Feb. 19. Tight labor market conditions are fueling wage growth, which is adding to inflation pressures.

Federal Reserve Chair Jerome Powell told lawmakers on Wednesday that "the labor market is extremely tight."

Powell said he would support a 25-basis-point interest rate hike at the U.S. central bank's March 15-16 policy meeting and would be "prepared to move more aggressively" if inflation does not abate as fast as expected.

U.S. stocks opened higher. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

LAYOFFS TUMBLE

Though Russia's war against Ukraine poses a risk to the labor market through disruptions of supply chains, economists expect the labor market will recoup all the jobs lost during the COVID-19 pandemic this year. Prices of oil, wheat and other commodities have soared, which will further stoke inflation.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 400,000 jobs in February after rising 467,000 in January. The unemployment rate is forecast to fall to 3.9% from 4.0% in January.

Expectations for a strong employment report were bolstered by a separate report on Thursday from global outplacement firm Challenger, Gray & Christmas showing U.S.-based employers announced 15,245 job cuts in February, down 20% from January. Layoffs dropped 56% compared to a year ago.

Companies also announced plans to hire 215,127 workers last month, the largest February total since Challenger began tracking monthly hiring figures in 2002. That compared to the 77,630 jobs announced in January.

"The latest numbers give more evidence that job creation is strong, and employers continue to hold fast to their workforces," said Andrew Challenger, senior vice president at Challenger, Gray & Christmas. "The churn in the labor market is coming from resignations."

The increase in planned hiring was led by retailers, with 114,118 jobs announced. Companies in the entertainment/leisure industry planned to add 22,369 jobs to payrolls. The government sector announced plans to hire 17,266 workers. Employers in the automotive industries planned to increase employment by 14,486.