- Weekly jobless claims fall 1,000
- Productivity dips 0.1 percent in fourth quarter
The number of Americans filing for unemployment benefits unexpectedly fell last week, pointing to a tightening labor market and strengthening economy at the start of the year.
Other data on Thursday showed worker productivity slipped in the fourth quarter for the first time since early 2016. Weak productivity underscores the challenges of sustaining strong economic growth.
Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 230,000 for the week ended Jan. 27, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims rising to 238,000 in the latest week.
Last week marked the 152nd straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was much smaller.
The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent. Tightening labor market conditions have raised optimism among Federal Reserve officials that inflation will increase towards the U.S. central bank’s 2 percent target this year.
The Fed on Wednesday left its benchmark overnight interest rate unchanged and described the job market as having “continued to strengthen.” U.S. financial markets expect a rate increase in March. The Fed has forecast three rate increases for this year after lifting borrowing costs three times in 2017.
U.S. stock index futures extended losses after Thursday’s data. Prices of U.S. Treasuries were trading lower and the dollar was weaker against a basket of currencies.
Last week, the four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 5,000 to 234,500, the lowest level since early November.
The claims data has no bearing on January’s employment report, which is scheduled to be released on Friday, as it falls outside the survey period. According to a Reuters survey of economists, nonfarm payrolls probably rose by 180,000 jobs in January after increasing by 148,000 in December.
In a second report on Thursday, the Labor Department said nonfarm productivity, which measures hourly output per worker, fell at a 0.1 percent annualized rate in the fourth quarter. That was the first drop and weakest performance since the first quarter of 2016.
Third-quarter productivity was revised to show it rising at a pace of 2.7 percent instead of the previously reported 3.0 percent rate. Compared to the fourth quarter of 2016, productivity increased at a rate of 1.1 percent.
Economists had forecast productivity rising at a 1.0 percent pace in the fourth quarter. Productivity increased 1.2 percent in 2017, the strongest performance since 2015, after dipping 0.1 percent in 2016.
Productivity growth averaged 1.2 percent between 2007 and 2017, below its long-term rate of 2.1 percent from 1947 to 2017.
Economists blame soft productivity on a shortage of workers, which could be an obstacle to faster economic growth. The Trump administration has slashed income taxes as it seeks to lift annual economic growth to 3.0 percent.
Other economists also argue that low capital expenditures, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity.
There is cautious optimism the sharp reduction in the corporate income tax rate to 21 percent from 35 percent will boost capital expenditures. Annual economic growth has not surpassed 3.0 percent since 2005. Gross domestic product rose 2.3 percent in 2017.
Hours worked increased at a rate of 3.3 percent in the fourth quarter, the fastest in three years, after rising at a 1.2 percent pace in the third quarter. Unit labor costs, the price of labor per single unit of output, rose at a pace of 2.0 percent in the final three months of 2017 after slipping at a rate of 0.1 percent in the third quarter.
Compared to the fourth quarter of 2016, unit labor costs rose at a rate of 1.3 percent. They gained 0.2 percent in 2017, the smallest increase since 2010, after rising 1.1 percent in 2016.