US weekly jobless claims fall by less than expected

'Red-hot' housing market proves unsustainable and begins to cool

Applications for jobless aid fell by 3,000 to 329,000 for the week ending June 11, the Labour Department reported. AP
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The number of Americans filing new claims for unemployment benefits fell by less than expected last week, suggesting some cooling in the labour market, though conditions remain tight.

The economy's outlook is darkening, with other data on Thursday showing homebuilding slumping to a 13-month low in May, weighed down by soaring mortgage rates and building material prices.

The economy's waning momentum comes as the Federal Reserve is aggressively raising interest rates to fight inflation.

The latest batch of economic data followed on the heels of news this week of a surprise decline in retail sales last month and could amplify fears of a recession.

The Fed on Wednesday raised its policy interest rate by three quarters of a percentage point, the biggest increase since 1994.

“The risk of a hard landing for the US economy has grown exponentially,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed's aggressive and abrupt policy tightening may soon be criticised for letting in the winds of recession.”

Initial claims for state unemployment benefits slipped 3,000 to a seasonally adjusted 229,000 for the week ended June 11. Economists polled by Reuters had forecast 215,000 applications for the latest week.

The decline partially reversed the prior week's jump, which had lifted filings close to a five-month high, and was blamed on seasonal fluctuations around moving holidays such as Memorial Day.

There has been a steady rise in reports of job cuts mostly in the technology and housing sectors. Still, claims have remained locked in a tight range since plunging to a more than a 53-year low of 166,000 in March.

Fed Chairman Jerome Powell told reporters on Wednesday that “the labour market has remained extremely tight” and that “labour demand is very strong”.

The US central bank has increased the overnight rate by 150 basis points since March.

“For now, supply and demand mismatches will keep filings low,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “But the level could start to trend up as the Fed continues to remove policy accommodation to slow demand.”

US stocks opened sharply lower. The dollar fell against a basket of currencies and US Treasury yields rose.

The claims report showed the number of people receiving benefits after an initial week of aid increased by 3,000 to 1.312 million during the week ending June 4. There were 11.4 million job openings at the end of April.

Higher borrowing costs are combining with record-high home prices to chill the housing market. This could help to bring housing demand and supply back into alignment and lower prices.

A separate report from the Commerce Department on Thursday showed housing starts plunged 14.4 per cent to a seasonally adjusted annual rate of 1.549 million units last month, the lowest level since April 2021. Economists had forecast starts would slide to a rate of 1.701 million units.

Permits for future homebuilding declined 7.0 per cent to a rate of 1.695 million units. A survey on Wednesday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index hit a two-year low in June, with a gauge of prospective buyer traffic falling below the break-even level of 50 for the first time since June 2020.

Single-family housing starts, which account for the biggest share of homebuilding, tumbled 9.2 per cent to a rate of 1.051 million units last month, the lowest since August 2020.

Single-family homebuilding rose in the North-East, but fell in the Midwest, South and West regions.

The 30-year fixed-rate mortgage jumped 25 basis points last week to an average of 5.65 per cent, the highest level since November 2008, data from the Mortgage Bankers Association showed.

Building permits for single-family homes declined 5.5 per cent to a rate of 1.048 million units, the lowest since July 2020.

Starts for housing projects with five units or more dived 26.8 per cent to a rate 469,000 units. Multi-family housing permits dropped 10.0 per cent to a rate of 592,000 units.

“Mortgage rates north of 6 per cent are likely sufficient to cool the housing market, which isn't necessarily a bad thing,” said Ryan Sweet, an economist at Moody's Analytics in West Chester, Pennsylvania.

“The housing market was red-hot, and that wasn’t sustainable.”

Updated: June 16, 2022, 4:54 PM