U.S. labor market remains tight; monthly producer prices accelerate

By Lucia Mutikani

WASHINGTON (Reuters) -The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, offering more evidence of the economy’s resilience despite tighter monetary policy.

Other data on Thursday showed monthly producer prices increasing by the most in seven months in January as the cost of energy products surged. Even stripping out food and energy, prices for the so-called core goods recorded their biggest gain since last May.

The reports, which followed in heels of data this week showing robust growth in retail sales in January and an acceleration in monthly consumer prices helped to stoke financial market fears that Federal Reserve could maintain its interest hiking campaign through summer.

“Labor market conditions remain exceptionally tight,” said Michael Pearce, lead U.S. economist at Oxford Economics in New York. “That is consistent with most other indicators which suggest that the labor market is still carrying plenty of momentum, leaving the Fed on track to raise rates at its March meeting, and probably at the May meeting too.”

Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 194,000 for the week ended Feb. 11, the Labor Department said. Economists polled by Reuters had forecast 200,000 claims for the latest week.

Unadjusted claims dropped 9,280 to 224,727 last week, reflecting a sharp decrease in applications in California. There were also significant declines in claims in Illinois and Pennsylvania, offseting increases in Ohio and Michigan.

Claims remain low despite high-profile layoffs in the technology sector and interest-rate sensitive industries. Some of the laid-off workers are likely finding new work or are delaying filing for benefits because of severance packages.

Companies are generally reluctant to lay off workers after experiencing difficulties recruiting during the pandemic. The National Federation of Independent Businesses reported this week that the share of small businesses reporting job openings increased in January, saying this suggested that “owners are still seeing opportunities to grow their business.”

Government data showed this month that there were 1.9 job openings for every unemployed person in December.

The claims report also showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 16,000 to 1.696 million during the week ending Feb 4.

Labor market resilience is marked by the lowest unemployment rate in more than 53 years. The Fed has raised its policy rate by 450 basis points since last March from near zero to a 4.50%-4.75% range, with the bulk of the increases between May and December. Though two additional rate hikes of 25 basis points are expected in March and May, financial markets are betting on another increase in June.

U.S. stocks opened lower. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.


A second report from the Labor Department on Thursday showed the producer price index for final demand rebounded 0.7% in January, the largest increase since June, after decreasing 0.2% in December. The rise was led by a 1.2% advance in goods prices, which followed a 1.4% decline in December.

A 6.2% jump gasoline prices accounted for nearly a third of the increase in goods. There were also increases in prices for residential natural gas, diesel fuel, jet fuel, soft drinks and motor vehicles.

But fresh and dry vegetable prices tumbled 33.5%. Excluding food and energy, core goods prices shot up 0.6%. That was the biggest increase in core goods prices in eight months and followed a 0.2 gain in December. Services increased 0.4%, matching December’s gain.

In the 12 months through January, the PPI increased 6.0% after advancing 6.5% in December. Economists had forecast the PPI climbing 0.4% and rising 5.4% year-on-year.

News on the housing market, the biggest causality of the U.S. central bank’s aggressive policy tightening stance, remained downbeat. Single-family housing starts, which account for the bulk of U.S. homebuilding, dropped 4.3% to a seasonally adjusted annual rate of 841,000 units in January, the Commerce Department said in a third report.

Single-family homebuilding plunged in the Northeast and West, with the latter likely depressed by flooding in California. Homebuilding rose in the densely populated South as well as the Midwest.

Starts for housing projects with five units or more fell 5.4% to a rate of 457,000 units. Multi-family housing construction remains underpinned by demand for rental accommodation.

With both single- and multi-family homebuilding declining, overall housing starts dropped 4.5% to a rate of 1.309 million units last month, the lowest level since June 2020.

Single-family building permits dropped 1.8% to a rate of 718,000 units, while those for housing projects with five units or more rose 0.5% to a rate of 563,000 units. Overall, building permits gained 0.1% to a rate of 1.339 million units.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Nick Zieminski)