US job market remains tight; housing market stabilizes

WASHINGTON, March 16 (Reuters) – The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to a continued strong labor market, as the turmoil in financial markets casts a shadow over the economy.

Other data on Thursday also provided a fairly bullish note on the economy, with a surge in home construction in February potentially paving the way for a housing market rebound in the spring. Imported inflationary pressures moderated last month, but regional manufacturing activity remained under pressure.

The reports and rising contagion fears in the banking sector pose a dilemma for the Federal Reserve when policymakers meet next Tuesday and Wednesday. Economists have cut their growth forecasts for this year, citing tighter credit and financial conditions following the recent collapse of two regional banks, as well as trouble at Credit Suisse (CSGN.S).

“The Fed faces a difficult balancing act in its fight to restore price stability without further rattling financial markets and triggering a recession,” said Priscilla Thiagamoorthy, senior economist at Toronto-based BMO Capital Markets.

Initial claims for state unemployment benefits fell by 20,000 to a seasonally adjusted number of 192,000 for the week ending March 11, the Labor Department said. The drop was the largest since July. Economists polled by Reuters had forecast 205,000 claims for the past week.

Unadjusted claims fell 21,396 to 217,444 last week. The number of claims in New York fell to 15,305, reversing the previous week’s increase attributed to a mid-winter school break.

There were notable declines in applications in California, Georgia, Oregon, and Minnesota, offsetting significant increases in Indiana and Ohio.

Despite job cuts by major tech companies, the job market has remained resilient, with employers generally reluctant to lay off workers after struggling to find work during the COVID-19 pandemic.

The continued tightness in the labor market, with 1.9 vacancies for every unemployed in January, and stubbornly high inflation argue for the Fed to hike rates further next week. But the failures of California’s Silicon Valley Bank and New York’s Signature Bank have led some economists to caution.

Financial markets expected a rate hike of 25 basis points during the Fed’s March 21-22 policy meeting on Thursday, according to the CME Group’s FedWatch tool.

They had wavered between a quarter-point rate hike and an interruption of the Federal Reserve’s most aggressive monetary tightening campaign since the 1980s. Since last March, the Fed has raised overnight rates by 450 basis points from near zero to the current range of 4.50%-4.75%.

Economists expect the stress from small banks to increase borrowing costs for businesses, especially small businesses, and reduce credit availability, impacting the labor market and economic growth. Goldman Sachs raised the probability of a U.S. recession in the next 12 months by 10 percentage points to 35% on Thursday.

“We already expected a significant slowdown in growth and job growth in the coming months, and the prospect of a substantial tightening of credit conditions increases the risk of a soft landing turning into a harder one,” said Ellen Zentner, chief US economist at Morgan Stanley in New York.

US stocks rose. The dollar slid against a basket of currencies. US Treasury bond prices fell.

HOUSING STARTS REBOUND

The claims report also showed that the number of people receiving benefits after an initial week of aid, a proxy for hiring, fell by 29,000 to 1.684 million in the week ending March 4. The low so-called ongoing claims suggest that some laid-off workers might be able to find new work easily for the time being.

The battered housing market could find a bottom. Construction of single-family homes, which accounts for the bulk of residential construction, rose 1.1% last month to a seasonally adjusted annual rate of 830,000 units, the Commerce Department reported. The number of single-family homes rose in the Northeast and West, but declined in the densely populated South and Midwest.

Construction of single-family homes fell 31.6% year-on-year in February. But the worst of the housing recession may be over. A survey on Wednesday found that the National Association of Home Builders/Wells Fargo Housing Market Index rose for a third consecutive month in March, though sentiment among homebuilders remains low.

Mortgage rates, which had resumed their upward trend, may start to fall now that US Treasury yields have fallen sharply amid the turmoil in the banking sector.

“Low yields could support spring season housing activity,” said Veronica Clark, an economist at Citigroup in New York.

Housing starts for projects with five units or more skyrocketed 24.1% to 608,000 units, the highest level since last April. Multi-family housing construction continues to be supported by rental demand, and more supply could help lower inflation.

The total number of homes started rose 9.8% last month to 1,450 million units, the highest level since September.

Permits for single-family homes rose 7.6% to a rate of 777,000 units after an 11-month decline. Permits for housing projects with five units or more jumped 24.3% to a rate of 700,000 units. Overall, building permits increased by 13.8% to a rate of 1.524 million units.

Another report from the Labor Department showed that import prices fell 0.1% last month after falling 0.4% in January. In the 12 months to February, import prices fell by 1.1%, the first drop since December 2020.

But non-fuel import prices rose sharply, indicating that the battle against inflation is far from over.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Paul Simao

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