US jobless claims fall; revised inflation higher in fourth quarter

WASHINGTON, Feb. 23 (Reuters) – The number of Americans filing new claims for unemployment benefits fell unexpectedly last week, pointing to a continued tight labor market and further fueling fears that the Federal Reserve could raise interest rates higher than expected.

Those concerns were reinforced on Thursday by other data showing fourth-quarter inflation was much stronger than initially thought, raising the risk of higher numbers when the government releases January personal consumption expenditure (PCE) price data on Friday.

While the Fed is expected to make two additional rate hikes of 25 basis points in March and May, financial markets are betting on another hike in June. The US Federal Reserve has raised its policy rate by 450 basis points since last March from near zero to a range of 4.50%-4.75%.

“If the labor market is the light that leads the Fed to bring inflation under control, policymakers still have some work to do as growth remains positive and labor demand is strong,” said Christopher Rupkey, chief economist at FWDBONDS in New York. York. “There’s no recession anywhere in today’s data and inflation looks a little worse.”

Initial claims for state unemployment benefits fell by 3,000 to a seasonally adjusted number of 192,000 for the week ending Feb. 18, the Labor Department said. Economists polled by Reuters had forecast 200,000 claims for the past week.

Unadjusted claims decreased by 14,465 to 210,867. Claims for four states, including California, were estimated, likely due to Monday’s President’s Day, which usually means less time for state offices to process applications.

Claims for California were estimated to have fallen sharply, which, along with significant declines in Michigan, New York and Minnesota, offset an increase in Kentucky.

Claims are locked in a tight range of 183,000-206,000 this year, remaining consistently low despite high-profile layoffs in the tech sector and interest-rate sensitive industries.

Economists have long argued that the large job losses from Twitter, Microsoft (MSFT.O) Amazon.com (AMZN.O) and Meta (META.O), Facebook’s parent company, overhiring staff during the pandemic were not representative of the total economy.

This view is also shared by policymakers. Minutes of the Federal Reserve from January 31 to February. A policy meeting published Wednesday found that “several participants noted that the recent reductions in the workforce of some major tech companies followed much larger increases in previous years and judged that these reductions did not seem to reflect widespread weakness in labor demand.”

US stocks opened higher. The dollar was stable against a basket of currencies. US Treasury bond prices rose.

STRONG LABOR MARKET

The claims data covered the week the government surveyed companies for the nonfarm payroll component of the February employment report. Claims were unchanged between the January and February survey weeks.

Economists expect strong job growth in February, although the pace likely slowed after last month’s eye-watering 517,000 jobs. Next week’s data on the number of people receiving benefits after a first week of aid will shed more light on the situation in the labor market in February.

So-called ongoing claims, a proxy for hiring, fell by 37,000 to 1.654 million in the week ending Feb. 11, the claims report also found. While persistent claims have increased in recent weeks, they remain very low by historical standards amid millions of job openings.

There were 1.9 job openings for every unemployed person in December, this month’s figures showed. At 3.4% in January, the unemployment rate was the lowest in more than 53 years. Goldman Sachs said on Wednesday it expected the unemployment rate to rise to 3.6% by the end of this year and stay there through the end of 2024.

Strong wage growth due to the tight labor market helps support the overall economy and keeps inflation high. A separate report from the Commerce Department on Thursday confirmed that the economy grew robustly in the fourth quarter, although much of the increase in output came from unsold goods at businesses.

Gross domestic product rose at a revised annualized rate of 2.7% last quarter, the government said in its second estimate of GDP in the fourth quarter. It was previously reported that the economy had grown by 2.9%. The revision reflected downward revisions to consumer spending and exports.

Robust growth in the second half ended the contraction of 1.1% in the first six months of the year. The economy grew by 2.1% in 2022.

Inflation rose much faster than initially estimated last quarter. A measure of inflation in the economy, the gross domestic purchase price index, rose 3.6% last quarter, revised up 0.4 percentage point from its previous estimate.

The PCE price index advanced at a pace of 3.7%, revised upward from the previously estimated pace of 3.2%. Excluding food and energy, the PCE price index rose 4.3%, an upward revision of 0.4 percentage point. The PCE price indices are the Fed’s preferred measure of inflation.

The price revisions were driven by used and new motor vehicles and fees for not-for-profit hospital services. They also reflected revisions to consumer and producer price data released this month from the Labor Department’s Bureau of Labor Statistics. The upgrades point to higher January PCE price indices.

The GDP report also showed that wage and salary growth in the third quarter was much stronger than previously reported.

Wages and salaries are now estimated to have increased $303.0 billion in the July-September quarter, an upward revision of $115.2 billion. As a result, the economy grew by 2.8% in the third quarter instead of the previously estimated rate of 0.8% as measured from the income side.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

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