US weekly jobless claims dip; labor market slack shrinking

Consumers increase borrowing by smallest amount since 2011

WASHINGTON, June 8, (Agencies): The number of Americans filing for unemployment benefits fell last week, unwinding half of the prior period’s jump and suggesting the labor market was tightening despite a recent slowdown in job growth.

Initial claims for state unemployment benefits declined 10,000 to a seasonally adjusted 245,000 for the week ended June 3, the Labor Department said on Thursday. The report followed data on Tuesday showing job openings at a record high in April.

“There is no sign of a pickup in the rate of layoffs. Against this backdrop of high job openings, firms appear to be holding on to their workers,” said John Ryding, chief economist at RDQ Economics in New York.

Claims surged by 20,000 in the prior week, with California, Tennessee, Kansas, and Missouri accounting for the bulk of the increase. Some of that increase was related to school summer breaks in which bus drivers and cafeteria workers were left temporarily unemployed.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 118 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at a 16-year low of 4.3 percent.

Economists polled by Reuters had forecast first-time applications for jobless benefits falling to 240,000 in the latest week. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 2,250 to 242,000 last week.

The dollar rose against the euro after the European Central Bank kept interest rates on hold but cut its forecasts for inflation and said policymakers had not discussed scaling back the central bank’s massive bond-buying program. Prices for US Treasuries fell, while stocks on Wall Street were slightly higher.

Low layoffs and record high job openings suggest a deceleration in job growth in May was likely because companies could not find suitable workers. The economy created 138,000 jobs in May, well below the average monthly 181,000 jobs gained over the prior 12 months.

Increased

The Labor Department reported on Tuesday that job openings, a measure of labor demand, increased by 259,000 to a seasonally adjusted 6.0 million in April, the highest level since the government started tracking the series in 2000.

“Labor market supply constraints are expected to bite into job creation but should also help to keep a lid on jobless claims as employers focus on retaining talent, so long as the economy continues to chug along,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

Economists believe that labor market tightness could encourage the Federal Reserve to raise interest rates at its June 13-14 policy meeting. The US central bank lifted its benchmark overnight interest rate by 25 basis points in March.

“The Fed will continue to view the labor market data as signaling that the economy remains at or near full employment,” said Michael Gapen, chief economist at Barclays in New York.

Thursday’s claims report also showed the number of people still receiving benefits after an initial week of aid fell 2,000 to 1.92 million in the week ended May 27. The so-called continuing claims now have been below 2 million for eight straight weeks, pointing to diminishing labor market slack.

The four-week moving average of continuing claims slipped 750 to 1.91 million, the lowest level since January 1974.

In another reports, American consumers increased their borrowing at the slowest pace in April than they have in almost six years. Credit card spending growth slowed, while borrowing gains for school and autos also cooled.

The Federal Reserve reports that total consumer borrowing rose $8.2 billion, or 2.6 percent, to $3.8 trillion. It was the smallest percentage increase since borrowing declined 3.5 percent in August 2011.

The category that includes student and auto loans increased $6.7 billion, or 2.9 percent — also the smallest increase in that category since August 2011.

Credit card borrowing increased $1.5 billion, or 1.8 percent.

Consumer borrowing is closely watched by economists to determine consumers’ willingness to take on more debt to support their spending. Consumer spending accounts for 70 percent of US economic activity.

The Commerce Department reported last month that consumer spending rose in April in part due to solid gains in incomes. Economists believe growth in consumer credit will remain strong this year, reflecting low unemployment and strong consumer confidence.

The Labor Department reported slightly sluggish job gains last week, but it was enough to nudge the unemployment rate down to 4.3 percent, its lowest level in 16 years.

The Federal Reserve Bank of New York reported last month that US household debt had reached a record high in the first quarter of 2017, topping the previous peak reached in 2008, when the financial crisis plunged the economy into a deep recession.

Even with debt levels back to record heights, analysts say that household borrowing appears more sustainable now than it did nearly a decade ago. The nature of what Americans owe has changed since the Great Recession, with student and auto loans making up a larger proportion of household debt. Mortgages — the epicenter of the financial crisis — and credit card debt remain below pre-recession levels. Also, interest rates are lower and lenders are much more focused on credit-worthy borrowers.

The Fed’s monthly consumer credit report does not cover home mortgages or other loans secured by real estate such as home equity loans.