U.S. economic growth struggles to rebound but labor market tightening
The number of Americans filing new claims for unemployment benefits rose slightly more than expected last week, but the underlying trend continued to point to a rapidly tightening labor market.
Despite the strength in the jobs market, the broader economy is struggling to kick into higher gear after growth braked sharply at the start of the year amid tepid consumer spending, as well as weak business investment and factory activity.
The modest rebound in growth at the start of the second quarter was underscored by other data on Thursday showing a surprise decline in home resales in April and persistent weakness in manufacturing in May.
Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 274,000 for the week ended May 16, the Labor Department said. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell to a fresh 15-year low.
“The trend in claims, solidly below the pre-recession trough, remains in line with our forecast for continued tightening in labor market slack ahead,” said Derek Lindsey, an economist at BNP Paribas in New York. Economists had forecast claims rising to 271,000 last week.
The sturdy labor market keeps the Federal Reserve on track to raise interest rates later this year. Minutes of the U.S. central bank’s April meeting released on Wednesday showed most policymakers saw little chance of a June rate hike.
In a separate report, the National Association of Realtors said existing home sales declined 3.3 percent to an annual rate of 5.04 million units last month.
The decline, which still left the sales pace above 5 million units, is likely to be temporary given the labor market gains. In addition, housing starts and permits for future building increased to multi-year highs April.
U.S. stocks were trading marginally higher, while the dollar slipped against a basket of currencies. U.S. Treasury debt prices rose.
