Automated translation by Reuters using machine learning and generative AI. Please refer to the following warning: https://bit.ly/rtrsauto.
(Addition of a survey on the manufacturing sector and analyst comments throughout the article)
* Weekly jobless claims fall by 3,000 to 209,000; layoffs remain low despite high-profile job cuts in the tech sector
* The number of ongoing jobless claims rises by 6,000 to 1.782 million, remaining relatively low
* Single-family housing starts drop by 9.0% in April; building permits decline by 2.6%
by Lucia Mutikani
The number of Americans filing for unemployment benefits decreased last week, showcasing the resilience of the labor market and giving the Federal Reserve the necessary flexibility to focus on rising inflation due to the war with Iran.
There is no indication yet that employers are responding to cost increases by reducing their workforce. The American-Israeli conflict with Iran, ongoing for nearly three months, has disrupted maritime traffic in the Strait of Hormuz, driving up energy prices, straining global supply chains, and causing shortages of a wide range of products, including fertilizers, aluminum, and consumer goods.
“We still cannot rule out some spillover effects from the war and the surge in oil prices on the labor market, which we have always expected would manifest with some lag,” said Matthew Martin, a senior US economist at Oxford Economics. “But for now, we believe the labor market is showing sufficient stability to allow the Fed to continue its policy unchanged.”
Initial claims for unemployment benefits at the state level dropped by 3,000 to 209,000 in seasonally adjusted data for the week ending May 16, the Labor Department reported on Thursday. Economists surveyed by Reuters had expected 210,000 claims for the past week. Claims have remained low despite high-profile layoffs in the tech sector related to the adoption of artificial intelligence.
The labor market may still weaken further. A survey by S&P Global released on Thursday showed that private-sector employment in May fell to its lowest level in 21 months, with services firms citing “growing concerns about rising costs and deteriorating demand.” Economists expect that the acceleration of inflation will erode demand and slow economic growth.
The survey also suggests that price pressures will continue to intensify. Its index of prices paid by businesses for inputs jumped in May to its highest level since November 2022. Companies have passed on the cost increases to consumers, with S&P Global also noting “growing supply shortages.”
As Wall Street stocks declined, oil prices rebounded after Reuters reported that the Iranian Supreme Leader had issued a directive banning the export of quasi-military-grade uranium from the country.
The dollar strengthened against a basket of currencies. US Treasury bond yields rose. The benchmark 10-year yield reached its highest level since January 2025 this week.
INFLATION A CAUSE FOR CONCERN
Financial markets expect the US central bank to keep its overnight benchmark interest rate in a range of 3.50% to 3.75% until next year. Minutes from the Fed’s April 28-29 meeting released on Wednesday expressed concerns about inflation due to the conflict escalation last month, with an increasing number of policymakers believing the Fed should prepare for a potential rate hike.
Officials generally “expected labor market conditions to remain stable in the near term,” the minutes reported, although most felt “that the risks to the employment leg of the Fed’s ‘dual mandate’ were tilted to the downside.”
Data on jobless claims for the past week covered the period during which the government surveyed businesses to compile the nonfarm payrolls component of the May employment report. Claims decreased between the survey weeks of April and May. Payrolls increased by 115,000 jobs in April, following a 185,000 gain in March.
The number of people receiving unemployment benefits after an initial week of aid, an indicator of hiring, rose by 6,000 to 1.782 million in seasonally adjusted data during the week ending May 9, according to the claims report.
While the labor market holds firm, the war is causing further distress to an already fragile housing market. A report from the Census Bureau of the Department of Commerce showed that single-family housing starts, which represent the bulk of residential construction, dropped by 9.0% to a seasonally adjusted annual rate of 930,000 units in April. Single-family construction declined in all regions. It fell by 2.4% from a year earlier in April.
Rising Treasury yields are pushing up mortgage rates, which track the movement of 10-year bonds. The 30-year fixed-rate mortgage, highly sought after, jumped this week, averaging 6.51%, its highest level in nine months, according to data from mortgage agency Freddie Mac.
It averaged 5.98% at the end of February, at the start of the war, as Freddie Mac and Fannie Mae had stepped up purchases of mortgage-backed securities.
Housing construction was already under pressure due to tariffs on imports, including softwood lumber and bathroom furniture, as well as rising costs of land, labor, and construction.
Building permits for single-family homes dropped by 2.6% last month to 872,000 units. They fell by 5.5% from a year earlier in April. Improvement is unlikely. A survey by the National Association of Home Builders released this week showed that builder sentiment remained subdued in May.
Residential investment, which includes housing construction, has contracted for five consecutive quarters. Goldman Sachs economists have lowered their estimate of second-quarter gross domestic product (GDP) to an annualized rate of 2.0%, down from 2.1% previously. The economy grew by 2.0% in the first quarter.
“Americans looking to buy their own single-family homes will remain disappointed,” said Christopher Rupkey, chief economist at FWDBONDS. “Inflation and financing are sending construction costs soaring, making new homes even more unaffordable if you can find one.”
