US labour market tightening, inflation gaining steam

WASHINGTON: The number of Americans filing for unemployment benefits fell last week, pointing to sustained labour strength even as economic growth appears to have slowed early in the first quarter. Other data showed an increase in the prices of imported goods in February amid weakness in the US dollar and rising commodity prices, bolstering expectations that inflation will pick up this year.
Import prices are likely to rise further after President Donald Trump last week imposed tariffs on steel and aluminium imports to shield domestic industries from what he has described as unfair competition from other countries.
Labour market strength and a steady increase in price pressures could pave the way for the Federal Reserve to raise interest rates at its March 20-21 policy meeting.
The US central bank has forecast three rate increases for this year, but some economists believe it will raise its projection to four hikes at the meeting.
“The strong willingness of companies to hold onto labour is a strong signal of the difficulty of replacing workers,” said John Ryding, chief economist at RDQ Economics in New York. “At this point we would expect another robust gain in jobs (in March) and a drop in the unemployment rate to 4.0 per cent.”
The economy created 313,000 jobs in February and the unemployment rate remained at a 17-year low of 4.1 per cent.
Initial claims for state unemployment benefits declined 4,000 to a seasonally adjusted 226,000 for the week ended March 10, the Labour Department said. Claims fell to 210,000 during the week ended February 24, the lowest level since December 1969.
Claims have now been below the 300,000 threshold, which is associated with a strong labour market, for 158 straight weeks. That is the longest such stretch since 1970, when the labour market was much smaller. Fed officials consider the labour market to be near or a little beyond full employment.
Economists are optimistic that tightening labour market conditions will boost wage growth in the second half of this year. That should help to underpin consumer spending, which slowed at the start of the year.
The government reported on Wednesday that retail sales fell in February for a third straight month. Data on home sales, business spending on equipment and industrial production in January have also been weak.
Gross domestic product growth estimates for the first quarter are as low as 1.7 per cent at an annualized rate. The economy grew at a 2.5 per cent pace in the fourth quarter, the government reported last month.
But revisions to December data on construction spending, factory orders and inventories have suggested the fourth-quarter growth estimate could be raised to a 3.1 per cent pace. The government will publish its third GDP growth estimate for the fourth quarter later this month.
The US dollar was stronger against a basket of currencies in midday trading. US government bond prices were slightly weaker and US stock indexes rose as industrial stocks mounted a recovery after three days of losses. — Reuters