US labour market rebalancing, economy slowing further in second quarter

The number of Americans filing new claims for jobless benefits fell last week, unwinding nearly half of the jump at the start of the month, consistent with a gradually cooling labor market.

Other data on Thursday suggested the economy lost further momentum early in the second quarter as the delayed effects of the Federal Reserve's hefty interest rate hikes start to have a bigger impact. Single-family homebuilding fell for the second straight month in April and permits for future construction hit an eight-month low. Output at factories unexpectedly fell.
 

"The economy is losing momentum in the face of restrictive monetary policy," said Sal Guatieri, a senior economist at BMO Capital Markets.
 

Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 222,000 for the week ended May 11, the Labor Department said. Economists polled by Reuters had forecast 220,000 claims in the latest week. Claims raced to an eight-month high in the prior week.
 

Unadjusted claims decreased 13,325 to 196,725. Claims in New York tumbled 9,442, almost reversing a prior surge which the state attributed to layoffs in transportation and warehousing, accommodation and food services as well as educational services industries. There were significant drops in filings in Illinois and Indiana, more than offseting a notable rise in Florida.
 

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 13,000 to a seasonally adjusted 1.794 million during the week ending May 4, the claims report showed. The so-called continuing claims remain low by historical standards.

The labor market is steadily rebalancing in the wake of 525 basis points worth of rate hikes from the U.S. central bank since March 2022 to cool demand in the overall economy.
 

Easing labor market conditions and the resumption in inflation's downward trend have raised the odds of a rate cut in September. The Fed earlier this month left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.
 

But the road back to the Fed's 2% inflation target is likely to be bumpy. A separate report from the Labor Department showed import prices vaulting 0.9% last month, the largest increase since March 2022, after an upwardly revised 0.6% rise in March.

Economists had expected import prices, which exclude tariffs, to advance 0.3% following a previously reported 0.4% gain in March.
 

In the 12 months through April, import prices accelerated 1.1%, the largest gain since December 2022.
 

Higher borrowing costs are threatening the housing recovery and keeping manufacturing on the backfoot.
 

Single-family housing starts, which account for the bulk of homebuilding, slipped 0.4% to a seasonally adjusted annual rate of 1.031 million units last month, the Commerce Department's Census Bureau said in a third report. Single-family housing starts rose 17.7% year-on-year in April as new construction draws a boost from an acute shortage of houses for sale.
 

Permits for future construction of single-family homes fell 0.8% to a rate of 976,000 units, the lowest level since August.

A fourth report from the Fed showed manufacturing output dropped 0.3% last month following a downwardly revised 0.2% increase in March. Economists had forecast factory output rising 0.1% after a previously reported 0.5% advance in March.
 

Production at factories fell 0.5% year-on-year in April.
 

Manufacturing accounts for 10.4% of the economy.