U.S. Weekly Jobless Claims Fall; Housing Finding Bottom

The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to continued labor market strength, though financial market turmoil is casting a shadow over the economy.

Other data on Thursday also struck a fairly upbeat note on the economy, with homebuilding surging in February, driven by the rental housing market, and import prices posting their first year-on-year decline since December 2020. Regional factories, however, continued to struggle in March.

"The sky is not falling for the real economy as the labor market shows no fresh sign of layoffs, and builders are preparing the ground to start work on more multifamily housing," said Chris Rupkey, chief economist at FWDBONDS in New York. "More rentals means less inflation from rents some might think."

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 192,000 for the week ended March 11, the Labor Department said. Economists polled by Reuters had forecast 205,000 claims for the latest week.

Unadjusted claims dropped 21,396 to 217,444 last week. Claims in New York tumbled 15,305, reversing the prior week's jump, which had been attributed to a mid-winter school break.

There were notable declines in filings in California, Georgia, Oregon and Minnesota. Claims rose significantly in Indiana and Ohio.

Despite job cuts by major technology companies, the labor market has remained resilient, with employers generally reluctant to lay off workers after struggling to find labor during the COVID-19 pandemic.

Labor market tightness, highlighted by data showing 1.9 job openings for every unemployed person in January, and stubbornly high inflation have bolstered the case for the Federal Reserve to continue raising interest rates next week.

But the recent collapse of two regional banks has sparked fears of contagion in the banking sector, bruising the stock market and prompting economists to lower their GDP growth estimates for this year.

Financial markets have wavered between a scenario in which the Fed hikes rates by a quarter of a percentage point and one in which it pauses its monetary policy tightening campaign at the March 21-22 policy meeting, according to CME Group's FedWatch tool.

As recently as last week, they were betting on a 50-basis-point rate hike. Those expectations were dialed back to 25 basis points after the government reported the economy added 311,000 jobs in February, but wage gains slowed and the unemployment rate rose two-tenths of a percentage point to 3.6%.

The expectation on Thursday was for a 25-basis-point rate hike next week. The U.S. central bank has raised its benchmark overnight interest rate by 450 basis points since last March from the near-zero level to the current 4.50%-4.75% range.

The claims report also showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased 29,000 to 1.684 million during the week ending March 4. The so-called continuing claims remain low, suggesting some laid-off workers could be easily finding new work.

But market volatility has led some economists to expect an easing in labor market conditions as businesses become more cautious and reassess their hiring and expansion plans.

"Any workers who suffer a job loss in the coming months will be more likely to need UI (unemployment insurance) benefits than those who have recently dealt with layoffs but have had the advantage of businesses' still insatiable appetite for hiring thus far," said Stuart Hoffman, senior economic advisor at PNC Financial in Pittsburgh, Pennsylvania.

U.S. stocks were mixed as worries about a global banking crisis lingered. The dollar dipped against a basket of currencies. U.S. Treasury prices rose.

HOUSING STARTS REBOUND

A report from the Commerce Department showed single-family homebuilding and permits for future construction rebounded in February, offering hope that the housing market was stabilizing after being hammered by higher mortgage rates.

Single-family housing starts, which account for the bulk of homebuilding, increased 1.1% to a seasonally adjusted annual rate of 830,000 units last month. They increased in the Northeast and West, but tumbled in the densely populated South as well as the Midwest. Single-family homebuilding dropped 31.6% on a year-on-year basis in February.

The housing market has been choked by the Fed's most aggressive interest rate hiking cycle since the 1980s to tame inflation. But the worst of the housing market downturn could be over. A survey on Wednesday showed the National Association of Home Builders/Wells Fargo Housing Market Index increased for a third straight month in March, though homebuilder sentiment remains depressed.

Mortgage rates, which had resumed their upward trend, could start falling as U.S. Treasury yields have declined sharply amid the recent banking turmoil. Some economists believe financial market instability could make it harder for the Fed to continue raising rates next week.

Housing starts for projects with five units or more shot up 24.1% to a rate of 608,000 units, the highest level since last April. Multi-family housing construction remains underpinned by demand for rental accommodation.

With both single- and multi-family homebuilding rising, overall housing starts surged 9.8% to a rate of 1.450 million units last month, the highest level since September.

Economists had forecast starts would rise to a rate of 1.310 million units in February. Starts dropped 18.4% on a year-on-year basis in February.

Single-family building permits increased 7.6% to a rate of 777,000 units. They had declined for 11 straight months.

Permits for housing projects with five units or more jumped 24.3% to a rate of 700,000 units. Overall, building permits vaulted 13.8% to a rate of 1.524 million units.

Another report from the Labor Department showed import prices slipped 0.1% last month after decreasing 0.4% in January. In the 12 months through February, import prices dropped 1.1%. That was the first decline since December 2020.

But import prices outside fuels rose solidly, indicating that the fight against inflation is far from over.