WASHINGTON (Nov 7): The number of Americans filing new applications for unemployment benefits rose slightly last week, suggesting no material change in the labour market and reinforcing views that hurricanes and strikes had resulted in job growth almost stalling in October.

Though the labour market is easing, wage pressures are showing signs of not abating at the same pace, casting a shadow on the inflation and interest rate outlook. Unit labour costs increased at solid clip in the third quarter, other data from the Labor Department showed on Thursday.

Economists said the strong rise in labour costs, which was accompanied by a sharp upward revision to the second-quarter data, could worry Federal Reserve officials, who were wrapping up a two-day policy meeting. The US central bank is expected to cut interest rates by 25 basis points (bps) later on Thursday, lowering its policy rate to the 4.5-4.75% range.

"Unit labour costs growth is the single biggest determinant of labour-intensive core services prices," said Paul Ashworth, chief North America economist at Capital Economics. "Unless unit labour costs growth slows again, it will be a lot harder for Fed officials to claim that inflation can be sustained at 2%."

Initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 221,000 for the week ended Nov 2, the Labor Department said. Economists polled by Reuters had forecast 221,000 claims for the latest week.

Unadjusted claims rose 10,827 to 212,274 last week. They were boosted by a 4,278 jump in filings in California. Applications rose by 3,563 in Michigan and shot up 1,927 in Ohio, more than offsetting significant drops in Florida and Georgia.

Employment growth slowed sharply last month, with non-farm payrolls increasing by only 12,000 jobs, the fewest since December 2020. That aligned with a surge in claims in early October as Hurricane Helene disrupted economic activity in the US Southeast region. Applications stayed elevated through the middle of last month after Hurricane Milton lashed Florida.

A strike by factory workers at Boeing, which forced the planemaker to implement rolling furloughs, also weighed on payrolls in October. The disruptions from the hurricanes have almost faded and the striking workers have gone back to work after agreeing to a new contract this week, paving the way for an acceleration in job growth in November.

"New claims are signaling the weak October payroll print was likely an aberration driven by storms and strikes and that we should see a rebound in November," said Abiel Reinhart, an economist at JPMorgan. "The influence of Hurricane Helene and Milton on initial claims also now looks to be largely gone."

Inflation back in focus

The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 39,000 to a seasonally adjusted 1.892 million during the week ending Oct 26, the claims report showed. The Boeing-related furloughs are mostly keeping the so-called continuing claims elevated.

"The settlement of the Boeing strike will bring down the number of continuing claims as soon as next week's report," said Carl Weinberg, chief economist at High Frequency Economics. "There is no call for radical monetary easing in today's [Thursday] figures, or in any labour market indicator for that matter."

The Fed embarked on its policy easing cycle with an unusually large half-percentage-point rate cut in September, the first reduction in borrowing costs since 2020. It hiked rates by 525bps in 2022 and 2023 to curb high inflation.

The dollar slipped against a basket of currencies. US Treasury yields were higher as investors continued to digest Donald Trump's victory in the US presidential election that has fuelled fears his economic policies could stoke inflation.

Concerns about inflation were amplified by a separate report from the Labor Department's Bureau of Labor Statistics showing unit labour costs — the price of labour per single unit of output — rose at a solid 1.9% rate in the July-September quarter after an upwardly revised 2.4% pace of expansion in the second quarter. Labour costs were previously reported to have edged up at a 0.4% pace in the second quarter.

The revisions reflected annual upgrades to national accounts data published in September, which showed stronger income and overall economic growth than previously estimated.

Labour costs increased at a 3.4% rate from a year ago, up from a 3.2% pace in the second quarter.

"At this pace, unit labour costs are incompatible with a return to 2% inflation in the context of stable profit margins and the Fed is going to have to rethink how much room it has to lower interest rates," said Conrad DeQuadros, senior economic advisor at Brean Capital.

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