First-time applications for U.S. unemployment benefits drifted lower last week, but the number of people on jobless rolls jumped to a 2-1/2 year high in mid-June, suggesting that labour market conditions were easing amid slowing economic growth.
Ebbing economic momentum was underscored by other data on Thursday showing business spending on equipment declined in May, while a slump in exports pushed up the goods trade deficit. The stream of softer data on the heels of a sharp slowdown in economic growth in the first quarter increases the probability of the Federal Reserve cutting interest rates in September.
Retail sales were tepid in May and inflation pressures subsided considerably. Economists do not see the data as suggesting that a recession was imminent.
“The U.S. economy is on track for a soft landing, just what the Fed wants to see,” said Sal Guatieri, as senior economist at BMO Capital Markets.
Initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 233,000 for the week ended June 22, the Labor Department said. The claims data included last Wednesday’s Juneteenth National Independence Day, a new holiday.
Claims tend to be volatile around public holidays. They have risen to the upper end of their 194,000-243,000 range of this year. Economists are split on whether the recent increase in claims points to rising layoffs or the repeat of volatility experienced during the same time last year.
Claims, which remain at historically low levels, are being closely watched to see whether employers are laying off more people as the economy slows in response to the 525 basis points worth of interest rate hikes delivered by the U.S. central bank since 2022 to tame inflation.
The government confirmed in a separate report on Thursday that economic growth moderated sharply in the first quarter.
Gross domestic product increased at a slightly upwardly revised 1.4 per cent annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its third estimate of GDP for the January-March quarter.
Growth was previously estimated at a 1.3 per cent pace. The economy expanded at a 3.4 per cent rate in the fourth quarter. While the growth pace likely picked up in the second quarter, it will probably not exceed a 2.0 per cent pace.
The U.S. central bank has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range since last July. Though policy-makers recently adopted a more hawkish outlook, financial markets expect the Fed to start its easing cycle in September.
U.S. stocks opened lower. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 18,000 to a seasonally adjusted 1.839 million during the week ending June 15, the highest level since late November 2021, the claims report showed.
The so-called continuing claims data covered the period during which the government surveyed households for June’s unemployment rate.
Continuing claims increased between the May and June survey weeks. The jobless rate rose to 4.0 per cent in May for the first time since January 2022. Most economists, however, did not view the rate at the current level as posing a danger to the labour market, arguing that the increase was concentrated among the 35-44 age group, recent immigrants and certain industries.
“Though job growth will slow, it will remain sufficient to limit a significant and broad-based increase in the unemployment rate,” said Ryan Sweet, chief economist at Oxford Economics.
A separate report from the Commerce Department’s Census Bureau showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.6 per cent last month after rising 0.3 per cent in April. Economists had forecast core capital goods orders edging up 0.1 per cent.
Business spending on equipment is under pressure from the higher interest rates and softening demand for goods.
A survey from the Institute for Supply Management this month noted that “demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions.”
Core capital goods shipments dropped 0.5 per cent after rising 0.4 per cent in April. Non-defense capital goods orders decreased 0.9 per cent, falling for a second straight month. Shipments of these goods tumbled 1.5 per cent after increasing 2.1 per cent in April. These shipments go into the calculation of the business spending on equipment component in the gross domestic product report.
Business spending on equipment rose marginally in the first quarter. Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, edged up 0.1 per cent last month after gaining 0.2 per cent in April.
A third report from the Census Bureau showed the goods trade deficit widened 2.7 per cent to $100.6-billion last month as exports declined 2.7 per cent. That suggested trade could again subtract from GDP growth this quarter.
