U.S. weekly jobless claims drop to near 49-year low

‘The economy is in overdrive’: Economist
By Lucia Mutikani
|hrreporter.com|Last Updated: 09/07/2018
U.S. President Donald Trump talks via speakerphone to Mexican President Enrique Pena Nieto to announce a deal to replace the North American Free Trade Agreement (NAFTA) at the White House in Washington, on Aug. 27. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) — The number of Americans filing new claims for unemployment aid fell to near a 49-year low last week and private payrolls rose steadily in August, pointing to sustained labour market strength that should continue to underpin economic growth.

The economy so far appears to be weathering an escalating trade war between the United States and China as well as tensions with other trade partners, including Canada, the European Union and Mexico, which have rattled financial markets.

This likely keeps the Federal Reserve on track to raise interest rates this month for the third time this year.

"The economy is in overdrive with jobless claims at lows not seen since the 1960s, and this gives the Fed the green light to raise interest rates later this month and take away some of the economy's punch," said Chris Rupkey, chief economist at MUFG in New York.

The Labor Department said on Thursday initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 203,000 for the week ended Sept. 1, the lowest level since Dec. 1969.

Economists polled by Reuters had forecast claims rising to 214,000 in the latest week. The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, fell 2,750 last week to 209,500, also the lowest level since Dec. 1969.

Though there have been reports of some companies either planning job cuts or laying off workers because of uncertainty caused by the Trump administration's protectionist trade policy, that has not yet been reflected in the claims data.

Economists say given labor market tightness, employers were reluctant to lay off workers. The labour market is viewed as being near or at full employment.

U.S. stocks were trading mixed after the data while prices of U.S. Treasuries were slightly higher. The dollar was lower against a basket of currencies.


Separately, the ADP National Employment Report showed private payrolls increased by 163,000 jobs last month. Data for July was revised to show private hiring rising by 217,000 jobs instead of the previously reported 219,000 positions.

Economists polled by Reuters had forecast private payrolls increasing by 190,000 jobs last month. The ADP report, which is jointly developed with Moody's Analytics, was published ahead of the government's more comprehensive employment report for August, which is due on Friday.

Though the ADP report has a spotty record predicting the private payrolls component of the employment report, economists said the August data hinted at some slowing in job growth.

"Employment growth is still well above the pace needed to absorb new entrants into the labour force, meaning that the unemployment rate, which is already unusually low, should continue to decline gradually," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 191,000 jobs in August, which would be an acceleration from the 157,000 jobs created in July. The unemployment rate is forecast slipping one-tenth of a percentage point to 3.8 per cent, revisiting an 18-year low touched in May.

Should the August employment report meet market expectations on Friday, that would likely seal the case for a rate increase at the Fed's Sept. 25-26 policy meeting.

The economy grew at a 4.2 per cent annualized rate in the second quarter, the fastest in nearly four years. Consumer and business spending data in July have suggested solid economic growth early in the third quarter. But there are concerns the trade tensions could hurt confidence and undercut spending.

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