By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits dropped to an eight-month low last week, indicating minimal layoffs towards the end of 2024 and aligning with a robust labor market. The report released by the Labor Department on Thursday further bolstered recent positive economic indicators, such as consumer spending, supporting the Federal Reserve’s outlook for fewer interest rate cuts this year. The durability of the labor market is instrumental in sustaining the ongoing economic expansion.
“A steady job market will temper the Fed’s inclination to aggressively reduce rates amidst persistent services inflation,” stated Jeffrey Roach, the chief economist at LPL Financial.
Initial claims for state unemployment benefits decreased by 9,000 to a seasonally adjusted 211,000 for the week ending Dec. 28, marking the lowest level reported since April. Economists surveyed by Reuters had anticipated 222,000 claims for the most recent week. Notable declines in unadjusted claims were observed in California and Texas, while significant increases in filings were recorded in Michigan, New Jersey, Pennsylvania, Ohio, Massachusetts, and Connecticut.
The four-week moving average of claims, which smooths out seasonal fluctuations, dropped by 3,500 to 223,250. Claim figures typically fluctuate around the year-end period, but despite this volatility, they remain indicative of a labor market that is gradually slowing down without signaling an economic downturn.
The U.S. dollar strengthened against a basket of currencies, while U.S. stock market indices were positioned to open higher.
Last month, the U.S. central bank implemented a third consecutive rate cut, reducing its benchmark overnight interest rate to a range of 4.25%-4.50%. However, the Federal Reserve projected only two additional cuts in borrowing costs for this year, in contrast to the four reductions previously forecasted in September, acknowledging the resilience of the job market and the broader economy. To curb inflation, the Fed had increased its policy rate by 5.25 percentage points between 2022 and 2023.
The labor market remains supported by historically low levels of layoffs, yet employers are exercising caution in expanding their workforces following a period of intense hiring during the recovery from the COVID-19 pandemic. Consequently, some individuals who have lost their jobs are confronting prolonged spells of unemployment, with the median duration of joblessness reaching nearly a three-year high in November.
The number of individuals receiving benefits after the initial week of aid, serving as a proxy for hiring activity, decreased by 52,000 to a seasonally adjusted 1.844 million during the week ending Dec. 21, as indicated by the claims report. Economists attribute some of the persistent elevation in continuing claims to challenges in eliminating seasonal variations from the data. They anticipate the unemployment rate to have remained steady at 4.2% in December.
The government is slated to release its closely monitored employment report for December next Friday.
(Reporting by Lucia Mutikani; Editing
