U.S. jobless claims rise, but labor market firming

States Cut Back on Unemployment Benefits
States Cut Back on Unemployment Benefits

WASHINGTON, March 3 (Reuters) - The number of Americans filing for unemployment benefits unexpectedly rose last week, but the underlying trend continued to point to a strengthening labor market.

The labor market's resilience was also backed by another report on Thursday showing announced layoffs by U.S. companies tumbled 18 percent in February. The signs of sustained labor market strength were the latest indication the economy is regaining momentum after slowing in the fourth quarter.

SEE ALSO: U.S. private sector adds 214,000 jobs in February: ADP

"Labor market trends remain firmly intact," said John Ryding, chief economist at RDQ Economics in New York.

Initial claims for state unemployment benefits increased 6,000 to a seasonally adjusted 278,000 for the week ended Feb. 27, the Labor Department said. Economists had forecast claims slipping to 271,000 in the latest week.

Claims have now been below the 300,000 threshold, which is associated with healthy labor market conditions, for a year. That is the longest period since the early 1970s.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 1,750 to 270,250 last week, the lowest level since late November.

In a separate report, global outplacement consultancy Challenger, Gray & Christmas Inc said U.S.-based companies announced 61,599 job cuts last month, down from 75,114 in January.

It said layoffs remained concentrated in the troubled energy sector, which has been hit by a slump in crude oil prices, where employers announced 25,051 job cuts in February.

There was also a pick-up in layoffs in the technology sector, which the consultancy said was normal given the "constant reinvention" in the industry.

The dollar fell against a basket of currencies after the data. U.S. stock index futures were little changed.


While the claims data has no bearing on Friday's employment report for February as it falls outside the survey period, it was the latest indication that the labor market remains on solid footing despite a recent tightening in financial market conditions sparked by worries of a recession.

A report on Wednesday showed strong private sector hiring last month, suggesting a pick-up in overall job growth.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 190,000 jobs last month after rising 151,000 in January. The unemployment rate is seen steady at an eight-year low of 4.9 percent.

The encouraging labor market data joins reports on manufacturing and consumer spending in suggesting economic growth picked up at the start of the year after slowing to an annual rate of 1.0 percent in the fourth quarter.

That, together with steadily rising inflation and improving financial market conditions could keep interest rate increases from the Federal Reserve this year on the table.

The U.S. central bank is not expected to raise its overnight benchmark interest rate at the March 15-16 meeting. The Fed hiked rates in December for the first time in nearly a decade.

In a second report, the Labor Department said nonfarm productivity fell at a 2.2 percent rate in the fourth quarter and not the 3.0 percent pace it reported last month. Still, labor-related costs increased solidly as companies employed more workers to raise output.

Productivity increased at a 2.0 percent rate in the third quarter and rose only 0.7 percent in 2015 - the smallest gain since 2013.

While weak productivity has boosted employment growth as companies hire more workers to increase output, sustained weakness could undermine Americans' living standards. Soft productivity has significantly lowered the economy's long-run potential.

Growth in unit labor costs, the price of labor per single unit of output, was revised down to a 3.3 percent rate from a 4.5 percent pace.

Higher labor costs, if sustained, could squeeze companies' profit margins. But for now, the trend in labor cost increases remains moderate. Unit labor costs increased at a 0.4 percent rate in the third quarter and rose 2.1 percent in 2015.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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Originally published