Unexpectedly, the number of Americans filing for unemployment benefits last week fell to its lowest level in almost 45 years as the labor market further tightened, strengthening the expectations of accelerated wage growth for 2018.
Initial claims for state unemployment benefits dropped by 9,000 to a seasonally adjusted 221,000 for the week ending February 3, according to the Labor Department on Thursday. Claims dropped to 216,000 in mid-January, the lowest level seen since 1973.
In a poll, economists had forecast claims to increase to 232,000 in the latest week. Last week was the 153rd straight week that claims stayed below the 300,000 threshold, which is connected to a robust labor market. This is the longest stretch since the labor market was much smaller in 1970.
The labor market coming close to full employment, with the jobless rate sustaining a 17-year low of 4.1 percent. The tighter labor market is starting to apply increasing pressure on wage growth.
Last week, the Labor Department reported that January’s year-on-year average hourly earnings increased 2.9 percent, the biggest increase since 2009, and following December’s 2.7 percent gain.
Strong wage growth strengthens the hope among Federal Reserve officials that this year inflation will hit the U.S. central bank’s 2 percent target. U.S. financial markets are predicting that the Fed will hike up interest rates in March. Three rate increases are forecast for this year, but much will be influenced by the inflation outlook as well as financial conditions.
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The Labor Department stated that Maine’s claims were estimated last week and that claims-taking procedures in Puerto Rico and the Virgin Islands had still not returned to normal months after the islands were hit by Hurricanes Irma and Maria.
The four-week moving average of initial claims, though of as a better measure of labor market trends as it removes out week-to-week volatility, dropped by 10,000 to 224,500 last week, a level not seen since 1973.
The claims report also revealed the number of people receiving benefits after a first week of aid dropped 33,000 to 1.92 million in the week ending January 27. The four-week moving average of the so-called continuing claims increased 2,500 to 1.95 million.