US labor market plodding along, but jobs becoming more scarce

By Lucia Mutikani

WASHINGTON (Reuters) -New applications for U.S. unemployment aid unexpectedly fell last week, but the number of people collecting benefits in mid-October was the highest in nearly three years, indicating it was becoming harder for those losing jobs to land new positions.

The second straight weekly drop in filings for state unemployment benefits reported by the Labor Department on Thursday likely reflected an ebb in claims from Hurricane Helene, which earlier this month had boosted applications to the highest level in nearly 1-1/2 years. The rise in claims related to Hurricane Milton has been more muted than initially feared.

Given the distortions from the hurricanes as well as an ongoing strike by roughly 33,000 workers at Boeing, economists expected Federal Reserve officials to shrug off any sharp slowdown in nonfarm payrolls growth or rise in the unemployment rate when they meet next month.

The employment report for October will be published days before Americans head to the polls on Nov. 5 to elect a new president.

"The labor market is softening but not imploding," said Carl Weinberg, chief economist at High Frequency Economics. "Fed policy is aimed at supporting the economy and the job market before a recession shapes up. Gradual easing to achieve that goal may achieve it."

Initial claims for state unemployment benefits dropped 15,000 to a seasonally adjusted 227,000 for the week ended Oct. 19, the Labor Department said. Economists polled by Reuters had forecast 242,000 claims for the latest week.

Unadjusted claims declined by 22,634 to 202,635 last week. A jump of 4,275 in filings in Florida was more than offset by significant decreases in Georgia, North Carolina, New York and Texas, as well as Tennessee, Ohio and Michigan.

Though the hurricanes and the strike have obscured the labor market view, there does not appear to be a major material shift.

The Fed's "Beige Book" report on Wednesday described employment as having "increased slightly" in early October, "with more than half of the districts reporting slight or modest growth and the remaining districts reporting little or no change."

It also noted that "many districts reported low worker turnover, and layoffs reportedly remained limited," adding that "demand for workers eased somewhat, with hiring focused primarily on replacement rather than growth."

That was reinforced by a survey from S&P Global on Thursday showing a measure of employment in the manufacturing and services sectors holding steady in October. S&P Global said a decline in service jobs was "often linked to the non-replacement of leavers rather than layoffs."

Historically low layoffs are propping up the labor market and the overall economy even as hiring has tapered off. Economists estimate that the hurricanes could cut as many as 40,000 jobs from October's nonfarm payrolls count. Estimates for payroll gains are currently in the 100,000 to 125,000 range.

The economy added 254,000 jobs in September. October's strike report on Friday could shed more light on payrolls for this month. Striking workers are counted as unemployed if they are not paid during the period that includes the 12th of the month, and they are not eligible for jobless benefits.

Boeing's unionized West Coast workers have been on strike for six weeks, with ripple effects on nonstriking employees and the planemaker's suppliers. They voted on Wednesday to reject a proposed new contract.

Stocks on Wall Street were mostly lower. The dollar fell against a basket of currencies. U.S. Treasury prices rose.

CONTINUING CLAIMS RISE

The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 28,000 to a seasonally adjusted 1.897 million during the week ending Oct. 12, the highest level since mid-November in 2021, the claims report showed. The jump in the so-called continuing claims reflected the fallout from the strike, Hurricane Helene as well as permanent job losses related to layoffs by Chrysler parent Stellantis.

Continuing claims covered the period during which the government surveyed households for October's unemployment rate. Continuing claims increased between the September and October survey weeks, raising the risk of an uptick in the jobless rate from 4.1% in September.

"Around three quarters of the increase in continuing jobless claims was in states not impacted by hurricanes," said Veronica Clark, an economist at Citigroup. "If the increase in continuing claims had been due to weather effects, this would not boost the unemployment rate."

The rise in the unemployment rate from 3.4% in April 2023 to 4.3% in July this year was the trigger for the U.S. central bank's unusually large 50-basis-point rate cut last month.

The first reduction in borrowing costs since 2020 lowered the Fed's policy rate to the 4.75%-5.00% range. The Fed hiked rates by 525 basis points in 2022 and 2023 to curb inflation. It is expected to cut rates by 25 basis points next month.

Lower interest rates buoyed new single-family home sales in September, which jumped to the highest level in almost 1-1/2 years, a third report from the Commerce Department's Census Bureau showed.

Supply, however, increased to levels last seen in early 2008. That could make builders more cautious about breaking ground on new housing projects, especially with mortgage rates having backed up over the last three weeks.

"Mortgage rates easing in September aided the increase but more recent trends may limit sales figures in coming months," said Colin Johanson, an economist at Barclays.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci)