© Reuters. Signage for a job fair is seen on 5th Avenue after the release of the jobs report in Manhattan, New York City, U.S., September 3, 2021. REUTERS/Andrew Kelly
By Lucia Mutikani
WASHINGTON (Reuters) -The number of Americans filing new claims for unemployment benefits increased moderately last week and data for the prior two weeks was revised sharply lower likely as fraudulent applications from Massachusetts were stripped out, indicating persistent labor market strength.
The report from the Labor Department on Thursday, which also showed fewer people collecting unemployment checks in mid-May, suggested that the economy was enjoying another month of strong employment gains and a lower jobless rate.
The government is scheduled to publish its closely watched employment report for May next Friday. Some economists said labor market resilience raised the risk that the Federal Reserve could raise interest rates again in June.
“The worrisome trend of more layoffs just got completely revised away where the labor market isn’t loosening up as much as Fed officials and markets had thought,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
“The economy is slowing but the Fed looks further behind the inflation-fighting curve than ever with the labor market tightness refusing to budge.”
Initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 229,000 for the week ended May 20. Data for the prior week was revised to show 17,000 fewer applications received than previously reported. Claims for the week ending May 6 were revised down by 33,000.
Massachusetts’ Department of Unemployment Assistance said in early May it was “experiencing an increase in fraudulent claim activities in which people attempted to gain access to active UI accounts or file new UI claims using stolen personal information so they can fraudulently obtain unemployment benefits.”
Unadjusted claims for Massachusetts fell 2,190 last week.
Economists polled by Reuters had forecast 245,000 overall claims for the latest week.
The low claims align with recent data on retail sales, factory production and business activity that have suggested the economy regained speed at the start of the second quarter.
The labor market has been resilient, despite 500 basis points worth of interest rate increases from the Fed since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign since the 1980s to tame inflation.
There were 1.6 job openings for every unemployed person in March, well above the 1.0-1.2 range that is consistent with a jobs market that is not generating too much inflation.
Employers have been hoarding workers after experiencing difficulties finding labor in the wake of the COVID-19 pandemic.
Economists expected layoffs to increase as the effects of the punitive rate hikes spread through the economy and tightening financial conditions make it harder for small businesses to access credit. Most expect a mild recession by the second half of the year.
U.S. stocks opened higher. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.
GDP GROWTH REVISED UP
Minutes of the Fed’s May 2-3 policy meeting published on Wednesday showed that while “participants noted that the labor market remained very tight,” they “anticipated that employment growth would likely slow further, reflecting a moderation in aggregate demand coming partly from tighter credit conditions.”
The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 5,000 to 1.794 million during the week ending May 13, the claims report showed.
The so-called continuing claims covered the period during which the government surveyed households for May’s unemployment rate. Continuing claims dropped between the April and May survey weeks. The unemployment rate fell back to a 53-year low of 3.4% in April.
Labor market tightness is supporting wage growth, helping to drive consumer spending and keep the overall economy afloat, but also eroding profits amid weak productivity.
In a separate report on Thursday, the Commerce Department confirmed economic growth slowed in the first quarter.
Gross domestic product increased at a 1.3% annualized rate last quarter, the government said in its second estimate of first-quarter GDP growth. That was revised up from the 1.1% pace reported last month. The economy grew at a 2.6% pace in the fourth quarter.
Economists had expected first-quarter GDP growth would be unrevised. The upward revisions reflected upgrades to inventory investment, state and local government spending, nonresidential fixed investment as well as exports. Residential fixed investment was revised lower.
After-tax profits without inventory valuation and capital consumption adjustment, which correspond to profits, decreased $57.6 billion, or at a 2.1% rate, in the first quarter. Profits have now declined for three straight quarters and were down 6.0% on a year-on-year basis.
With profits declining, economic output contracted at a 2.3% pace in the first quarter when measured from the income side. Gross domestic income (GDI) declined at a 3.3% pace in the fourth quarter. In principle, GDP and GDI should be equal, but in practice differ as they are estimated using different and largely independent source data.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, fell at a 0.5% rate last quarter after slipping at a 0.4% pace in the fourth quarter.