WASHINGTON, April 13 (Reuters) – The number of Americans filing new applications for unemployment benefits rose more than expected last week, further evidence that labor market conditions are gradually softening as higher borrowing costs dampen demand in the economy. .
The slowing momentum in the economy was underlined by other data from the Labor Department on Thursday showing producer prices fell by the most in nearly three years in March, as viscous service inflation eased. However, the labor market and inflation likely won’t cool down fast enough to prevent the Federal Reserve from raising interest rates again next month.
“Fed officials couldn’t ask for better data today as the economy appears to be finally running out of gas after a year of raising interest rates,” said Christopher Rupke, chief economist at FWDBONDS in New York. “Fed officials thought the economy might slow down after the banking crisis and now it looks like a slowdown is happening.”
Initial claims for state unemployment benefits increased by 11,000 to a seasonally adjusted 239,000 for the week ending April 8. Economists polled by Reuters expected 232,000 claims in the final week.
Unadjusted claims increased 27,457 to 234,577 last week, with California filings rising by 11,388. There were also big gains in claims in New Jersey, Pennsylvania, Texas, New York and Connecticut. That made up for a marked decline in Ohio.
Annual revisions to data published by the government last week showed that claims were much higher this year than previously expected, in line with a rush of high-profile layoffs in technology industries as well as other highly sensitive sectors.
However, claims remain below the 270,000 level, which economists say a breach of which would indicate a deterioration in the labor market. Last Friday’s employment report showed a slower but still solid pace of job growth in March.
Job openings fell below 10 million at the end of February for the first time in nearly two years. However, there were 1.7 job vacancies for every unemployed person that month, which could make it easier for some laid-off workers to get a job.
The number of people receiving benefits after an initial week of assistance, a proxy for employment, fell by 13,000 to 1.810 million during the week ending April 1, not far from record lows before the pandemic, the claims report showed.
There is no evidence yet that the tightening of credit conditions after the failure of two regional banks last month has led to job losses.
Economists expect small businesses such as restaurants, bars, and nail salons to be affected by the credit crunch.
“We expect labor market health to deteriorate at a gradual pace in the second quarter, but then weaken more rapidly in the second half as the economy experiences a mild recession,” said Oren Klashkin, chief US economist at Oxford Economics in New York. . “The next slowdown in the labor market will be modest as the decline in demand is expected to be fairly modest.”
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury yields were mixed.
Low prices for services
Financial markets are betting that the Federal Reserve will raise interest rates by another 25 basis points at its May 2-3 policy meeting, according to CME Group’s FedWatch tool. This is likely to be the last rate hike in the US central bank’s fastest tightening campaign since the late 1980s.
The Fed last month raised its key overnight rate by a quarter of a percentage point, but signaled it was about to halt further rate increases in a sign of financial market turmoil. It has raised the interest rate by 475 basis points since last March from a near zero level to the current range of 4.75%-5.00%.
In a separate report Thursday, the Labor Department said its producer price index for final demand fell 0.5% in March, the most since April 2020, after remaining unchanged in February.
A decline of 1.0% in commodity prices accounted for two-thirds of the decline in the producer price index. Commodity prices fell 0.3% in February. Gasoline prices fell 11.7% last month, while food prices rebounded 0.6%. There have also been declines in the prices of diesel fuel, natural gas fuel for residential aircraft, and electric power.
Gasoline prices are set to rebound after Saudi Arabia and other OPEC+ oil producers earlier this month announced further cuts in oil production. Excluding the volatile food and energy components, commodity prices rose 0.3%, matching February’s gain.
Services prices fell 0.3%, the largest drop since April 2020. There was a 0.9% drop in margins for commercial services. The cost of transportation and storage services decreased 1.3%.
In the 12 months through March, the producer price index increased by 2.7%. This was the smallest year-over-year rise since January 2021 and followed a 4.9% rise in February.
The annual rate of producer prices recedes as the large increases in the past year are excluded from the calculation. Global supply chains have improved significantly. Economists had expected the PPI to remain unchanged during the month and to rise 3.0% on a yearly basis.
On Wednesday, the government reported that overall consumer prices barely rose in March.
Excluding the food, energy and trade components, producer prices rose 0.1% in March. Core PPI rose 0.2% in February. In the 12 months through March, core PPI advanced 3.6% after increasing 4.5% in February.
With PPI and CPI data in hand, economists estimated that the core personal consumption expenditures (PCE) price index rose 0.3% in March, matching February’s rise. The core PCE price index was expected to rise 4.6% year-on-year after a similar increase in February.
The core PCE price index is one of the measures of inflation that the Fed tracks for monetary policy. March data will be published at the end of this month.
“For a Fed that is already inclined to pause, this report signals the scale a bit more, especially after yesterday’s CPI failed to reveal any new inflationary problems,” said Chris Low, chief economist at FHN Financial in New York.
(Reporting by Lucia Mutikani) Editing by Chizu Nomiyama
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