U.S. jobless claims at eight-week low; housing starts fall

Reuters News
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Posted: Sep 17, 2015 8:35 AM

By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing new applications for unemployment benefits fell last week to the lowest level in eight weeks, suggesting the labor market continued to strengthen despite the recent tightening in financial market conditions.

While other data on Thursday showed housing starts fell for a second straight month in August, they remained above the one million-unit mark, which signals a housing market growing at a solid clip. In addition, building permits rose last month.

The signs of a firming economy are supportive of an interest rate hike by the Federal Reserve at a meeting that concludes on Thursday. But the case for higher borrowing costs has been undermined by global financial markets turmoil.

The decision whether to raise the Fed's short-term interest rate from near zero is seen as a close call.

"If the Fed just focused on the current economic situation there would be no doubt that they would raise rates today," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. "But we learned over the past decades that the Fed puts more emphasis on financial developments than any other central bank."

Initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 264,000 for the week ended Sept. 12, the Labor Department said on Thursday. That was the best reading since the week ended July 18, when claims hit their lowest level since 1973.

It marked the 28th straight week that claims remained below the 300,000 threshold, which is usually associated with a strengthening labor market. Economists had forecast claims holding at 275,000 last week.

U.S. financial markets are pricing a roughly 25 percent probability of a lift-off in the Fed's benchmark overnight interest rate when the U.S. central bank announces its decision at 2 p.m.

Stocks in Wall Street were little changed as investors awaited the announcement, while prices for U.S. Treasury debt rose marginally. The dollar fell against a basket of currencies.

FIRMING LABOR MARKET

The claims data covered the period during which the government surveyed employers for the nonfarm payrolls portion of the September employment report. Claims fell 13,000 between the August and September survey weeks, suggesting some pick-up in job growth after slowing in August.

Labor market conditions are tightening, with record high job openings. At a 7-1/2-year low of 5.1 percent, the unemployment rate is into the range that most Fed officials think is consistent with a low but steady rate of inflation.

In a second report, the Commerce Department said groundbreaking for new homes dropped 3.0 percent to a seasonally adjusted annual pace of 1.13 million units last month.

Despite the fall, which reflected declines in groundbreaking on single and multifamily projects, starts remained above a one million-unit pace for the fifth straight month. Building permits increased 3.5 percent last month to a 1.17 million-unit pace, after declining 15.5 percent in July.

"The small dip in August housing starts is minor considering the sustained momentum we've seen in housing overall in 2015," said Bill Banfield, vice president at Quicken loans in Detroit.

"When you couple the slow but steady rise in single-family unit construction with an increase in builder confidence, it's further support that housing is returning to its place as a major player in driving economic growth." 

The firming labor market has unleashed pent-up demand for housing, especially among young adults. A report on Wednesday showed confidence among homebuilders advancing to a near-decade

high in September.

In August, groundbreaking for single-family homes, which

accounts for the largest share of the market, fell 3.0 percent to a 739,000 unit pace. Single-family home building in the South, where most of the home construction takes place, rose 9.2 percent to the highest level since December 2007.

Starts for the volatile multifamily segment fell 3.0

percent to a 387,000 unit rate. Single-family building permits rose 2.8 percent in August to their highest level since January 2008. Multi-family building permits rose 4.7 percent.

A third report showed manufacturing continued to struggle against the headwinds of a strong dollar and soft global demand.

The Philadelphia Fed said its business activity index fell to minus 6.0 in September from positive 8.3 in August. A reading below zero indicates contraction in the region's manufacturing.

(Reporting By Lucia Mutikani, additional reporting by Dan Burns in New York; Editing by Andrea Ricci)