By Lucia Mutikani
WASHINGTON, Oct 1 (Reuters) – New applications for US unemployment benefits drifted close to 57-year lows last week and layoffs decreased in September, suggesting labor market stability persisted even as employers remained cautious about boosting hiring.
The report from the Labor Department on Thursday joined a raft of other data, including robust consumer spending in August, in painting a rosy picture of the economy despite rising headwinds from the US-Israeli war with Iran, which has driven diesel prices to record highs. Economists said robust corporate profits growth and resilient domestic demand were shielding workers from layoffs, for now.
“At some point, elevated energy costs and material prices will force firms to lay off marginal workers to protect profit margins, but there is no sign of that here,” said Carl Weinberg, chief economist at High Frequency Economics.
Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 197,000 for the week ended September 26, the Labor Department said on Thursday. Economists polled by Reuters had forecast 200,000 claims for the latest week.
Claims have held below the 200,000 level for three straight weeks and are near levels last seen in 1969. Some economists said historically low layoffs, if sustained, could raise questions about the labor market overheating, with monetary policy implications.
“We do not appear to be close to that result yet, but this is a new risk that the FOMC appears to be watching,” said Stephen Stanley, chief US economist at Santander US Capital Markets, referring to the Fed’s policy-setting committee.
A separate report from global outplacement firm Challenger, Gray & Christmas showed layoffs announced by US-based employers dropped 18% to 43,281 in September. They were down 20% from a year ago and fell 43% in the third quarter. Employers are, however, in no rush to increase headcount.
Hiring plans increased by 90,787 last month. While that was sharply up from 12,325 in August, hiring intentions were down 23% from a year ago, and the tally was the lowest for any September since 2011. Challenger, Gray & Christmas said a surge in seasonal hiring typically seen starting in September was absent, adding that “companies are in a wait-and-see period.”
The Federal Reserve last month raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs in the months ahead. The odds of another rate hike this month were diminished by cooler-than-expected inflation readings in August and July.
Financial markets priced in a roughly 37.1% chance of further monetary policy tightening at the October 27-28 meeting, down from about 68.6% a week ago, CME’s FedWatch tool showed.
But August’s market-friendly inflation readings are unlikely to be sustained. An Institute for Supply Management survey on Thursday showed inflation pressures building up at the factory gate in September, with no commodities reported to have seen price declines. The survey’s measure of input prices jumped to 77.9 last month from 71.1 in August.
SUPPLY CHAIN CONSTRAINTS
Strong demand is running into capacity constraints, with supply chains stretched because of the war and tariffs.
“The longer energy-driven price pressures persist, the greater the risk that they feed through into broader consumer price pressures,” said Thomas Ryan, senior North America economist at Capital Economics.
Comments from respondents to the survey were mostly negative and focused on pricing volatility, import tariffs, the Middle East conflict and increasing lead times.
Some transportation equipment manufacturers complained that “every month, we are faced with new headwinds created by this administration,” alluding to the trade war with Canada, adding “the only thing that is predictable is the chaos that is created by these trade policies.”
Others in the electrical equipment, appliances and components industry said “new tariffs against Canada have drastically increased costs for capital expenses as well as assemblies.” Similar complaints were voiced by some makers of computer and electronic products who reported that the “US tariff schedule is providing challenges.”
Food, beverage and tobacco products manufacturers complained about higher fuel prices driving up “transportation costs and the overall cost of goods.” While some makers of fabricated metal products reported strong orders, they said labor and steel shortages were “limiting our production output to meet demand.”
Stocks on Wall Street were trading lower. The dollar advanced versus a basket of currencies. US Treasury prices fell, with the yield on the benchmark 10-year note hitting the highest level in 24 years.
The claims report showed the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, dropped 11,000 to a seasonally adjusted 1.701 million during the week ended September 19. That was the lowest level in the so-called continuing claims since April 2023.
Still, some people who have lost their jobs are experiencing long spells of unemployment. A survey from the Conference Board on Tuesday showed the share of consumers saying jobs were “plentiful” dropped in September to the lowest level since February 2021, while the proportion who viewed jobs as “hard to get” was the highest in more than 5-1/2 years.
The claims data have no bearing on September’s employment report as they fall outside the survey period. Nonfarm payrolls likely increased by 90,000 jobs last month after advancing 162,000 in August, a Reuters survey of economists showed. The unemployment rate is forecast holding steady at 4.1% for a third straight month, in part held down by a smaller labor force because of retirements and an immigration crackdown.
“We continue to think the pace of layoffs will rise next year, in response to the recent tightening of financial conditions and growing adoption of AI by firms,” said Samuel Tombs, chief US economist at Pantheon Macroeconomics.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
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