The US labor market appears to be cooling off; Homebuilding Plunges as Rates Rise

A ‘Now Hiring’ sign is displayed in the window of an IN-N-OUT fast food restaurant in Encinitas, California, U.S., May 9, 2022. REUTERS/Mike Blake/File photo

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  • Weekly jobless claims fall 3,000 to 229,000
  • Continued claims rise 3,000 to 1,312 million
  • Housing starts plummet 14.4% in May; permits fall 7.0%

WASHINGTON, June 16 (Reuters) – The number of Americans filing new claims for jobless benefits fell less than expected last week, suggesting some cooling in the labor market, although conditions remain difficult.

There are growing signs that the Fed’s aggressive efforts to rein in demand and bring inflation down to its 2% target are beginning to have an impact. Home construction plunged to a 13-month low in May, while a gauge of factory activity in the Mid-Atlantic region contracted for the first time in two years in June. read more

The US central bank on Wednesday raised its official interest rate by three-quarters of a percentage point, the biggest increase since 1994. read more

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“The Fed is getting what it wants as financial market conditions tighten and interest rate-sensitive parts of the economy respond to the removal of accommodative monetary policy,” said Ryan Sweet, senior economist at Moody’s Analytics. in West Chester Pennsylvania.

Initial claims for state jobless benefits fell 3,000 to a seasonally adjusted 229,000 for the week ending June 11, the Labor Department said. Economists polled by Reuters had forecast 215,000 claims for the latest week.

The decline left intact most of the jump from the previous week, which had lifted filings near a five-month high. California reported an increase in unadjusted claims last week. There were notable increases in Ohio and Michigan, potentially related to the auto industry. Claims also rose sharply in Illinois and Pennsylvania, but fell in Missouri.

unemployment claims

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

Fed Chairman Jerome Powell told reporters on Wednesday that “the labor market has remained extremely tight” and that “labor demand is very strong.” The US central bank has raised its benchmark overnight rate by 150 basis points since March.

There were 11.4 million job openings at the end of April. The number of people receiving benefits after an initial week of aid rose from 3 billion to 1.312 million during the week ending June 4.

“For now, mismatches between supply and demand will keep filings down,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “But the level could start to rise as the Fed continues to undo accommodative policy to curb demand.”

Thursday’s data followed this week’s news of a surprise drop in US retail sales in May, amplifying fears of a recession.

Stocks on Wall Street plummeted. The dollar fell against a basket of currencies. US Treasury yields fell.

LOSING SPEED

The housing market, the sector most sensitive to interest rates, is slowing down. But this could help bring housing supply and demand back in line and lower prices.

A separate report from the Commerce Department showed housing starts fell 14.4% to a seasonally adjusted annual rate of 1.549 million units last month, the lowest level since April 2021. Economists had forecast that starts would be reduced at a rate of 1.701 million units.

Permits for the construction of future homes decreased by 7.0% 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 breakeven level of 50 for the first time since June 2020. read more

Single-family housing starts, which account for the bulk of home construction, fell 9.2% to a rate of 1.051 million units last month, the lowest since August 2020. Starts increased in the Northeast, but they fell in the Midwest, South and West regions. .

housing starts and building permits

The 30-year fixed-rate mortgage jumped 55 basis points this week to a 13-1/2-year high of 5.78%, mortgage finance agency Freddie Mac reported Thursday. That was the biggest one-week gain since 1987.

“However, rising rates are not all bad news,” said Jacob Channel, senior economist at LendingTree. “Although home prices are unlikely to plummet to any great extent, an increase in home supply will likely slow home price growth significantly and give prospective buyers more home options to choose from.”

Single-family home building permits fell 5.5% to a pace of 1.048 million units, the lowest since July 2020.

Entries for housing projects with five units or more rose 26.8% to a rate of 469,000 units. Multifamily housing permits fell 10.0% to a rate of 592,000 units.

The number of homes approved for construction that have not yet started increased 0.7% to 283,000 units. Home completions were the highest since 2007, which along with slowing demand could help push prices down.

Goldman Sachs cut its second-quarter gross domestic product estimate by two-tenths of a percentage point to an annualized rate of 2.8%. The economy contracted at a rate of 1.5% in the January-March quarter.

“The Fed’s aggressive and abrupt policy tightening could soon be criticized for letting in the winds of recession,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

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Reporting by Lucia Mutikani Editing by Nick Zieminski and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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