Tag Archives: economists

U.S. weekly jobless claims jump to near one-and-a-half year high

FILE PHOTO - A man holds a leaflet at a military veterans' job fair in Carson, California October 3, 2014. REUTERS/Lucy Nicholson

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits surged to near a 1-1/2-year high last week, but economists dismissed the jump as a fluke and said temporary factors, including a partial government shutdown, were to blame.

A strike by teachers in California, cold weather and difficulties adjusting the data around moving holidays like Martin Luther King Jr. Day also likely were factors in the spurt in claims reported by the Labor Department on Thursday.

“We are skeptical the rise could reflect a true weakening in the labor market given that there are few other signs of weaker labor markets in January,” said John Ryding, chief economist at RDQ Economic in New York. “Nonetheless, if we maintain this higher level of jobless claims in the coming weeks, that would indicate a pickup in layoff activity.”

Initial claims for state unemployment benefits jumped 53,000 to a seasonally adjusted 253,000 for the week ended Jan. 26, the highest level since September 2017, the Labor Department said. The rise was also the largest since September 2017.

Claims dropped to 200,000 in the prior week, which was the lowest level since October 1969. Economists polled by Reuters had forecast claims rising to only 215,000 in the latest week.

The claims data covered the Martin Luther King Jr. holiday, which occurred later this year than in the past. Economists believe non-federal government workers who were temporarily unemployed during the longest government shutdown in the country’s history likely helped to boost claims last week.

The surge in claims came amid a recent deterioration in business and consumer confidence, which was partly blamed on a five-week government shutdown that has since ended.

The Federal Reserve on Wednesday kept interest rates steady but said it would be patient in lifting borrowing costs further this year in a nod to growing uncertainty over the economy’s outlook. The U.S. central bank removed language from its December policy statement that risks to the outlook were “roughly balanced.”

The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 5,000 to 220,250 last week.

The claims data has no bearing on January’s employment report, which is scheduled for release on Friday, as it falls outside the survey period. According to a Reuters survey of economists, non-farm payrolls likely increased by 165,000 jobs in January after jumping by 312,000 in December.

The 35-day government shutdown is not expected to have an impact on January’s job growth, as workers who were furloughed will be paid retroactively together with colleagues who worked without pay. However, those workers who stayed at home during the shutdown are expected to temporarily push up the unemployment rate in January.

The dollar fell against most major currencies, dropping to a two-week low versus the yen, pressured by the Fed’s cautious economic outlook. U.S. Treasury yields fell, while stocks on Wall Street were trading mostly higher.

STEADY WAGE GAINS

Underscoring the labor market’s strength, another report on Thursday from the Labor Department showed its Employment Cost Index, the broadest measure of labor costs, increased 0.7 percent in the fourth quarter after rising 0.8 percent in the July-September period.

The fourth quarter rise lifted the year-on-year rate of increase in labor costs to 2.9 percent, the biggest gain since June 2008, from 2.8 percent in the 12 months through September.

Wages and salaries, which account for 70 percent of employment costs, rose 0.6 percent in the fourth quarter after advancing 0.9 percent in the prior period. They were up 3.1 percent in the 12 months through December.

That was the biggest increase since June 2008 and followed a 2.9 percent gain in the year through September.

“It supports our view that the tightness in the labor market is generating upward pressure on compensation,” said Daniel Silver, an economist at JPMorgan in New York.

While the labor market is on solid footing, manufacturing appears to be slowing. A third report on Thursday showed the MNI Chicago business barometer dropped 7.1 points to a reading of 56.7 in January as new orders tumbled to a two-year low. The survey’s measure of production dropped to a 10-month low.

There was some good news on the housing market. The Commerce Department reported new home sales vaulted 16.9 percent in November to a seasonally adjusted annual rate of 657,000 units. The surge erased October’s 8.3 percent plunge in single-family home sales.

The November home sales report was delayed by the government shutdown, which affected the Commerce Department.

The housing market struggled in 2018, weighed down by acute shortages of homes for sales, which boosted prices, as well as higher mortgage rates. But there are glimmers of hope as house price inflation has slowed significantly and mortgage rates have eased after shooting up last year.

Supply, however, still remains tight.

“We expect a further rise in new home sales during 2019 as homebuyers look to new builds, with inventory conditions for existing homes still extremely tight,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.

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

Finding the bright side in a graying U.S. workforce

By Mark Miller

CHICAGO (Reuters) – (The opinions expressed here are those of the author, a columnist for Reuters.)

U.S. Economists call it the “old-age dependency ratio” – a rough measure of the balance between people who work and retirees.

The ratio compares the number of people over age 65 – classified as old – with those aged 15 to 64 – and it is not headed in a healthy direction: by 2040, there will be 2.7 working-age Americans for each retiree, down from 4.8 in 2010.

That number from the Federal Reserve Bank of Atlanta points toward a shortfall of workers available to support an aging population, and it is cited often to justify doom-and-gloom warnings about economic growth, federal spending and the health of our social insurance programs.

But do not tell that to Chris Farrell. The senior economics contributor to “Marketplace,” American Public Media’s nationally syndicated public radio business and economic program is bullish on aging. Farrell is the author of a new book, “Purpose and a Paycheck: Finding Meaning, Money, and Happiness in the Second Half of Life,” that seeks to upend a range of myths about old age and dependency, replacing them with a new vision of contribution to society and purpose-driven living.

He argues the case with convincing economic analysis and on-the-ground reporting – interviewing dozens of older workers finding their way forward in the labor market, and profiling companies on the leading edge of change.

For starters, he notes that the dependency ratio itself is deeply flawed because it assumes everyone over age 64 has left the workforce – and increasingly, that is not the case. Participation in the labor force by older workers has been rising steadily in recent years. Farrell cites U.S. Bureau of Labor Statistics figures showing that from 1995 to 2016, the share of men ages 65 to 69 in the labor force rose from 28 percent to 38 percent; for women, the figure jumped from 18 percent to 30 percent.

“I’m convinced there is a large segment of people out there who think we all just go from age 60 to 90 in one year, Farrell told me in an interview. And when you look at all the research coming out of Wall Street and many economists, their perspective is not that much different.”

RESHAPING THE ECONOMY

Farrell sees the aging of the U.S. population not as a problem, but a major opportunity to create a more inclusive society and vibrant economy. He argues that a more engaged older population will shape everyday life – everything from housing markets to public transportation, urban design and healthcare.

“We have this image of the way life unfolds – you go to school, work and raise children and then retire somewhere else,” he said. “Plenty of our institutions have reflected that. But as people work longer and stay in urban areas longer, the impact will be profound – just for one example, older people tend to want public transportation – and so do younger people.”

Farrell’s analysis of the labor market for older workers is especially provocative. The Great Recession ushered in a decade of high U.S. unemployment rates for millions who found themselves shut out of the job market by age discrimination. And age discrimination is alive and well.

For example, a recent analysis of data from the University of Michigan Health and Retirement Study by ProPublica and the Urban Institute found that 56 percent of older workers are laid off at least once or leave jobs under such financially damaging circumstances that it’s likely they were pushed out rather than choosing to go voluntarily. The report also found that just one in 10 of these workers earn as much as they did before their job losses.

Farrell acknowledges that discrimination remains a tough problem, but he argues we are at an inflection point where employers will be forced to accommodate older workers due to the overall tight labor market. “It’s not that employers have suddenly become enlightened, but they will have to look at older workers with a different eye and think about hiring differently,” he said. “Do they want to fulfill their missions and grow their businesses, or not?”

Farrell tells the stories of dozens of experienced workers and later-life entrepreneurs who are forging new paths in their sixties, seventies and beyond. He also digs up plenty of examples of companies that are rethinking their approaches to accommodating older workers.

A small Minnesota precision machine company facing a thin pipeline of skilled machinists has invested in new equipment to reduce the physical strain on older workers so they can stick around longer. A healthcare company in Virginia changed the way it calculates pension benefits to avoid penalizing workers who cut back to part-time hours close to retirement.

“I really believe we’ve crossed the Rubicon on this problem,” he said. “Older workers just will be looked at differently – we’ve crossed a line and can’t go back.”

(Reporting and writing by Mark Miller in Chicago; Editing by Matthew Lewis)

U.S. weekly jobless claims drop to near 49-year low

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson

WASHINGTON (Reuters) – The number of Americans filing applications for jobless benefits tumbled to near a 49-year low last week, which could ease concerns about a slowdown in the labor market and economy.

Initial claims for state unemployment benefits dropped 27,000 to a seasonally adjusted 206,000 for the week ended Dec. 8, the Labor Department said on Thursday. Last week’s decline in claims was the largest since April 2015. Claims hit 202,000 in mid-September, which was the lowest level since December 1969.

Data for the prior week were revised to show 2,000 more applications received than previously reported.

Economists polled by Reuters had forecast claims falling to 225,000 in the latest week. Claims shot up to an eight-month high of 235,000 during the week ended Nov. 24.

The Labor Department said only claims for Virginia were estimated last week.

The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 3,750 to 224,750 last week.

While difficulties adjusting the data around holidays likely boosted applications in prior weeks, there were concerns the labor market was losing some momentum given financial market volatility, the fading stimulus from a $1.5 trillion tax cut and the Trump administration’s protectionist trade policy.

Last week’s sharp drop in claims also suggests a slowdown in job growth in November was likely the result of worker shortages. Nonfarm payrolls increased by 155,000 jobs after surging by 237,000 in October.

With the unemployment rate near a 49-year low of 3.7 percent, Federal Reserve officials view the labor market as being at or beyond full employment.

The U.S. central bank is expected to raise interest rates at its Dec. 18-19 policy meeting. The Fed has hiked rates three times this year. Most economists expect the central bank will increase borrowing costs twice next year, although traders expect no more than one rate increase.

Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid increased 25,000 to 1.67 million for the week ended Dec. 1.

The four-week moving average of the so-called continuing claims slipped 2,500 to 1.67 million.

(Reporting by Lucia Mutikani Editing by Paul Simao)

U.S. homebuilding slowing; labor market strong

FILE PHOTO: Construction workers are pictured building a new home in Vienna, Virginia, outside of Washington, October 20, 2014./File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. homebuilding rebounded less than expected from a nine-month low in July, suggesting the housing market was likely to tread water for the rest of this year against the backdrop of rising construction costs and labor shortages.

But the fundamentals for the housing market remain strong. New filings for jobless benefits fell again last week, other data showed on Thursday, pointing to sustained labor market strength despite an escalating trade war between the United States and China that has rattled financial markets.

“It is more expensive to buy a new home for the American worker,” said Chris Rupkey, chief economist at MUFG in New York. “We cannot be confident that home construction will pick up in the near future.”

Housing starts rose 0.9 percent to a seasonally adjusted annual rate of 1.168 million units in July, the Commerce Department said. Starts fell to a nine-month low in June.

Groundbreaking activity increased in the Midwest and South, but dropped in the Northeast, and hit a more than 1-1/2-year low in the West. Last month’s increase in starts still left the bulk of June’s 12.9 percent plunge intact.

Building permits increased 1.5 percent to a rate of 1.311 million units, snapping three straight months of decreases. With permits now outpacing starts, homebuilding could pick up in the months ahead. But gains are likely to be limited as builders continue to complain about rising construction costs as well as shortages of skilled labor and land.

Lumber prices shot up after the Trump administration slapped anti-subsidy duties on imports of Canadian softwood lumber. Though prices have dropped in the past months, they remain high.

The housing market has underperformed a robust economy, with economists also blaming the slowdown on rising mortgage rates, which have combined with higher house prices to make home purchasing unaffordable for some first-time buyers.

The 30-year fixed mortgage rate has risen more than 50 basis points this year to an average of 4.53 percent, according to data from mortgage finance agency Freddie Mac. While that is still low by historical standards, the rise has outpaced annual wage growth, which has been stuck below 3 percent.

At the same time, house prices have increased more than 6.0 percent on an annual basis, largely driven by a dearth of properties available for sale. Residential investment contracted in the first half of the year and economists do not expect housing to contribute to growth in the final six months of 2018.

The economy grew at a 4.1 percent annualized rate in the second quarter, the fastest in nearly four years and almost double the 2.2 percent pace logged in the January-March period.

Economists polled by Reuters had forecast housing starts rising to a pace of 1.260 million units last month and permits increasing to a rate of 1.310 million units.

“Given the chronic lack of affordable housing and rapidly escalating home prices, it is worrisome that on a per capita basis, the country is producing new single-family housing stock at a rate that is similar to the trough of a typical recession,” said Sam Khater, chief economist at Freddie Mac.

The PHLX housing index <.HGX> was trading higher, tracking a broadly firmer U.S. stock market. The dollar slipped against a basket of currencies and U.S. Treasury prices fell.

TIGHT SUPPLY

Single-family home building, which accounts for the largest share of the housing market, rose 0.9 percent to a rate of 862,000 units in July. Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.

Permits to build single-family homes jumped 1.9 percent in July to a pace of 869,000 units. Single-family building permits in the South, where more than half of homebuilding occurs, vaulted to an 11-year high in July.

Starts for the volatile multi-family housing segment gained 0.7 percent to a rate of 306,000 units in July. Permits for the construction of multi-family homes climbed 0.7 percent to a pace of 442,000 units.

With the moderate rise in homebuilding last month, housing inventory is likely to remain tight. In addition, housing completions fell for a third straight month, hitting an eight-month low rate of 1.188 million.

Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap. The stock of housing under construction was little changed at 1.122 million units.

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 212,000 for the week ended Aug. 11.

The claims data is being closely watched for signs of layoffs as a result of the Trump administration’s protectionist trade policy, which has also led to tit-for-tat import tariffs with other trading partners, including the European Union, Canada, and Mexico.

There have been reports of some companies either laying off workers or planning to as a result of the import duties. But with many companies reporting difficulties finding qualified workers, the fallout from the trade tensions might be minimal.

A third report showed factory activity in the mid-Atlantic region slowing sharply in August as new orders growth cooled. The Philadelphia Federal Reserve said its business conditions index tumbled 14 points to a 21-month low of 11.9 this month. Manufacturers were, however, optimistic about business prospects over the next six months.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Slowing gasoline price rises keep U.S. inflation in check

A woman shops in the Health & Beauty section of a Whole Foods in Upper St. Clair, Pennsylvania, U.S., February 15, 2018. Picture taken February 15, 2018. REUTERS/Maranie Staab

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices rose marginally in May amid a slowdown in increases in the cost of gasoline and the underlying trend continued to suggest moderate inflation in the economy.

The Labor Department’s inflation report was published ahead of the start of the Federal Reserve’s two-day policy meeting on Tuesday. Steadily rising inflation and a tightening labor market are expected to encourage the U.S. central bank to raise interest rates for a second time this year on Wednesday.

The Consumer Price Index increased 0.2 percent last month, also as food prices were unchanged. That followed a similar gain in the CPI in April. In the 12 months through May, the CPI increased 2.8 percent, the biggest advance since February 2012, after rising 2.5 percent in April.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, supported by a rebound in new motor vehicle prices and a pickup in the cost of healthcare, after edging up 0.1 percent in April. That lifted the year-on-year increase in the so-called core CPI to 2.2 percent, the largest rise since February 2017, from 2.1 percent in April.

Annual inflation measures are rising as last year’s weak readings fall from the calculation. Last month’s increase in both the CPI and core CPI was in line with economists’ expectations.

The Fed tracks a different inflation measure, which is just below its 2 percent target. Economists are divided on whether policymakers will signal one or two more rate hikes in their statement accompanying the rate decision on Wednesday.

The dollar held gains versus a basket of currencies immediately after the data before falling to trade slightly lower. U.S. Treasury yields were trading lower while U.S. stock index futures were slightly higher.

FOOD PRICES

The Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, rose 1.8 percent on a year-on-year basis in April, matching March’s increase.

Economists expect the core PCE price index will breach its 2 percent target this year. Fed officials have indicated they would not be too concerned with inflation overshooting the target.

Last month, gasoline prices increased 1.7 percent after surging 3.0 percent in April. Food prices were unchanged in May after rising 0.3 percent in the prior month. Food consumed at home fell 0.2 percent amid declines in the cost of meat, eggs, fruits and vegetables.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent in May after a similar gain in April.

Healthcare costs gained 0.2 percent last month after nudging up 0.1 percent in April. Prices for new motor vehicles rose 0.3 percent after sliding 0.5 percent in April.

Prices for used cars and trucks fell 0.9 percent after tumbling 1.6 percent in April. Airline fares declined 1.9 percent in May after dropping 2.7 percent in the prior month. Prices for apparel and recreation were unchanged in May.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. jobless claims rise; continuing claims lowest since 1973

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson/File Photo

WASHINGTON (Reuters) – New applications for U.S. unemployment benefits increased more than expected last week, but the number of Americans on jobless rolls fell to its lowest level since 1973, pointing to tightening labor market conditions.

Initial claims for state unemployment benefits rose 24,000 to a seasonally adjusted 242,000 for the week ended March 31, the Labor Department said on Thursday. Data for the prior week were revised to show 3,000 more claims received than previously reported.

Economists polled by Reuters had forecast claims rising to 225,000 in the latest week. Last week’s increase likely reflected difficulties adjusting the data around moving holidays like Easter and school spring breaks.

The labor market is considered to be near or at full employment. The jobless rate is at a 17-year low of 4.1 percent, not too far from the Federal Reserve’s forecast of 3.8 percent by the end of this year.

The Labor Department said claims for Maine and Colorado were estimated last week. It also said claims-taking procedures in Puerto Rico and the Virgin Islands had still not returned to normal after the territories were devastated by Hurricanes Irma and Maria last year.

The four-week moving average of initial claims, viewed as a better measure of labor market trends as it irons out week-to-week volatility, rose 3,000 to 228,250 last week.

The claims data has no bearing on March’s employment report, which is scheduled for release on Friday. According to a Reuters survey of economists, nonfarm payrolls probably increased by 193,000 jobs in March. The unemployment rate is forecast falling one-tenth of a percentage point to 4.0 percent.

Economists are optimistic that tightening labor market conditions will start boosting wage growth in the second half of this year. That should help to support consumer spending, which slowed at the start of the year.

The claims report also showed the number of people receiving benefits after an initial week of aid fell 64,000 to 1.81 million in the week ended March 24, the lowest level since December 1973. The four-week moving average of the so-called continuing claims dropped 13,500 to 1.85 million, the lowest reading since January 1974.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net)

Americans job market tightening, inflation steadily rising

FILE PHOTO: A help wanted sign is posted on the door of a gas station in Encinitas California

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing for unemployment benefits fell last week, pointing to sustained labor strength even as economic growth appears to have slowed early in the first quarter.

Other data on Thursday showed a rise in the prices of imported goods in February amid U.S. dollar weakness, bolstering expectations that inflation will pick up this year. Labor market strength and a steady increase in price pressures could allow the Federal Reserve to raise interest rates next week.

Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 226,000 for the week ended March 10, the Labor Department said on Thursday. Claims decreased to 210,000 during the week ended Feb. 24, which was the lowest level since December 1969.

Last week’s drop in claims was in line with economists’ expectations. It was the 158th straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was much smaller.

Fed officials consider the labor market to be near or a little beyond full employment. The unemployment rate is at a 17-year low of 4.1 percent.

The economy created 313,000 jobs in February. Economists are optimistic that tightening labor 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. Data on Wednesday showed retail sales fell in February for a third straight month.

Gross domestic product growth estimates for the first quarter are as low as a 1.7 percent annualized rate. Reports on home sales and industrial production in January have also been weak. The economy grew at a 2.5 percent pace in the fourth quarter.

The U.S. dollar gained against a basket of currencies after Thursday’s data while U.S. stock index futures moved higher. Prices of U.S. Treasuries were trading mostly lower. Diminishing labor market slack is also expected to help boost inflation toward the U.S. central bank’s 2 percent target.

IMPORTED CAPITAL GOODS PRICES RISE

In another report, the Labor Department said import prices increased 0.4 percent last month after accelerating 0.8 percent in January. That lifted the year-on-year increase in import prices to 3.5 percent from January.

Last month, prices for imported capital goods jumped 0.6 percent. That was the biggest increase since April 2008 and followed an unchanged reading in January.

Prices of imported consumer goods excluding automobiles rose 0.5 percent, the largest gain since January 2014, after edging up 0.1 percent in the prior month. These price increases likely reflected the dollar’s depreciation against the currencies of the United States’ main trading partners, and will eventually filter through to core producer and consumer inflation.

Imported petroleum prices fell 0.5 percent in February, the first drop in seven months, after rising 3.0 percent in January. Import prices excluding petroleum surged 0.5 percent after a similar gain in January.

The price of goods imported from China rose 0.2 percent. Prices for imports from China increased 0.3 percent in the 12 months through February, the biggest advance since June 2014.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. job growth cools as labor market nears full employment; wages rise

Job seekers line up to apply during "Amazon Jobs Day," a job fair being held at 10 fulfillment centers across the United States aimed at filling more than 50,000 jobs, at the Amazon.com Fulfillment Center in Fall River, Massachusetts, U.S., August 2, 2017.

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed more than expected in December amid a decline in retail employment, but a pick-up in monthly wage gains pointed to labor market strength that could pave the way for the Federal Reserve to increase interest rates in March.

Nonfarm payrolls increased by 148,000 jobs last month after surging by 252,000 in November, the Labor Department said on Friday. Retail payrolls decreased by 20,300 in December, the largest drop since March, despite reports of a strong holiday shopping season.

The unemployment rate was unchanged at a 17-year low of 4.1 percent. Economists polled by Reuters had forecast payrolls rising by 190,000 in December. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

“We do not think that today’s employment report will keep the Federal Reserve from tightening again at the March policy meeting, given other strong recent economic data,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

Job growth surged in October and November after being held back in September by back-to-back hurricanes, which destroyed infrastructure and homes and temporarily dislocated some workers in Texas and Florida.

Taking some sting out of the moderation in job gains, average hourly earnings rose 9 cents, or 0.3 percent, in December after a 0.1 percent gain in the prior month. That lifted the annual increase in wages to 2.5 percent from 2.4 percent in November.

Prices of U.S. Treasuries were mostly flat while the U.S. dollar <.DXY> was slightly stronger against a basket of currencies. U.S. stock indexes opened at fresh record highs.

Employment gains in December were below the monthly average of 204,000 over the past three months. Job growth is slowing as the labor market nears full employment, but could get a temporary boost from a $1.5 trillion package of tax cuts passed by the Republican-controlled U.S. Congress and signed into law by President Donald Trump last month.

The lift from the fiscal stimulus, which includes a sharp reduction in the corporate income tax rate to 21 percent from 35 percent, is likely to be modest as the stimulus is occurring with the economy operating almost at capacity. There are also concerns the economy could overheat.

“With the tax cuts we get solid GDP growth in the near-term and then a fiscal hangover, which will likely put the economy at a greater risk of recession,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

NEAR FULL EMPLOYMENT

Data ranging from housing to manufacturing and consumer spending have suggested solid economic growth in the fourth quarter, despite a widening of the trade deficit in both October and November, which could subtract from gross domestic product.

In a separate report on Friday, the Commerce Department said the trade gap widened 3.2 percent in November to $50.5 billion, the highest level since January 2012.

The deficit was boosted by record high imports, which offset the highest exports in three years. The economy grew at a 3.2 percent annualized rate in the third quarter.

For all of 2017, the economy created 2.1 million jobs, below the 2.2 million added in 2016. Economists expect job growth to slow further this year as the labor market hits full employment, which will likely boost wage growth as employers compete for workers.

Economists are optimistic that annual wage growth will top 3.0 percent by the end of this year. The December employment report incorporated annual revisions to the seasonally adjusted household survey data going back five years.

There was no change in the unemployment rate, which declined by seven-tenths of a percentage point last year.

Economists believe the jobless rate could drop to 3.5 percent by the end of this year. That could potentially unleash a faster pace of wage growth and translate into a much stronger increase in inflation than currently anticipated.

That, according to economists, would force the Fed to push through four interest rate increases this year instead of the three it has penciled in. The U.S. central bank raised borrowing costs three times in 2017.

“If the unemployment rate declines and wages rise faster, which is likely, the Fed is going to start worrying about wage inflation,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Employment gains were largely broad-based in December. Construction payrolls increased by 30,000 jobs, the most since February, reflecting recent strong increases in homebuilding. Manufacturing employment increased by 25,000 jobs.

Manufacturing is being supported by a strengthening global economy and a weakening dollar. Employment in the utilities sector fell for a second straight month.

General merchandise stores payrolls tumbled by 27,300 in December, with employment at clothing stores dropping by 3,800 jobs.

For all of 2017, retail employment dropped by 67,000 jobs after rising by 203,000 in 2016. Further job losses are likely this year as major retailers, facing stiff competition from online sellers like Amazon.com Inc <AMZN.O>, close stores.

Sears Holdings Corp said on Thursday it was shuttering 103 unprofitable Kmart and Sears stores. Macys Inc also announced 11 store closures, which could leave 5,000 workers unemployed.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. home sales hit 11-year high in November, supply still tight

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012.

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. home sales increased more than expected in November, hitting their highest level in nearly 11 years, the latest indication that housing was regaining momentum after almost stalling this year.

The National Association of Realtors said on Wednesday that existing home sales surged 5.6 percent to a seasonally adjusted annual rate of 5.81 million units last month amid continued recovery in areas in the South ravaged by Hurricanes Harvey and Irma. That was the highest level since December 2006 and followed an upwardly revised 5.50 million-unit pace in October.

Economists polled by Reuters had forecast home sales rising 0.9 percent to a 5.52 million-unit rate in November from a previously reported 5.48 million-unit pace in October.

Existing home sales make up about 90 percent of U.S. home sales. They rose 3.8 percent on a year-on-year basis in November.

The NAR said sales in the South, which accounts for almost half of the existing homes sales market, increased 8.3 percent last month. Sales rose 6.7 percent in the Northeast and jumped 8.4 percent in the Midwest. They, however, fell 2.3 percent in the West, which has seen a strong increase in house prices.

Despite the recent gains, existing home sales remain constrained by a chronic shortage of houses at the lower end of the market, which is keeping prices elevated and sidelining some first-time buyers, who accounted for 29 percent of transactions last month.

Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.

The number of previously owned homes on the market dropped 7.2 percent to 1.67 million units in November. That was the second lowest reading since 1999. Housing inventory has dropped for 30 straight months on a year-on-year basis.

At November’s sales pace, it would take a record low 3.4 months to exhaust the current inventory, down from 3.9 months in October. A six-month supply is viewed as a healthy balance between supply and demand.

With supply still tight, the median house price increased 5.8 percent from a year ago to $248,000 in November. That was the 69th consecutive month of year-on-year price gains. In contrast, annual wage growth has struggled to break above 2.9 percent since the 2007/09 recession ended.

The report came on the heels of data this week showing homebuilder confidence vaulting to a near 18-1/2-year high in December and single-family homebuilding and permits rising in November to levels last seen in the third quarter of 2007.

TAX REVAMP WILL HURT HOUSE PRICES

The NAR said it anticipated a slightly negative impact on the housing market from the Republican overhaul of the U.S. tax code.

The biggest overhaul of the tax system in more than 30 years, which could be signed into law by President Donald Trump soon, will cap the deduction for mortgage interest at $750,000 in home loan value for residences bought from Jan. 1, 2018, through Dec. 31, 2025.

After Dec. 31, 2025, the cap would revert to $1 million in loan value. It suspends the deduction for interest on home equity loans from Jan. 1, 2018 until 2026. The NAR said about 94 percent of homeowners would fall under the $750,000 cap.

Moody’s Analytics chief economist Mark Zandi has warned that the tax revamp would weigh on house prices, with the Northeast corridor, South Florida, big Midwestern cities, and the West Coast suffering the biggest price declines.

“The hit to national house prices is estimated to be near 4 percent at the peak of their impact in summer 2019,” said Zandi. “That is, national house prices will be approximately 4 percent lower than they would have been if there was no tax legislation.”

The PHLX housing index was trading higher in line with a broadly firmer stock market. The dollar slipped against a basket of currencies. Prices for U.S. Treasuries fell.

The government reported on Tuesday that single-family homebuilding, which accounts for the largest share of the housing market, jumped 5.3 percent in November to the highest level since September 2007.

Permits for the future construction of these housing units rose 1.4 percent to a level not seen since August 2007. Housing completions continued to lag at a rate of 1.116 million units.

Realtors estimate that the housing starts and completions rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Fed interest rate hike expected next week, three hikes expected in 2018/poll

The Federal Reserve headquarters in Washington September 16 2015. REUTERS/Kevin Lamarque/File Photo

By Shrutee Sarkar

BENGALURU (Reuters) – The U.S. Federal Reserve is almost certain to raise interest rates later this month, according to a Reuters poll of economists, a majority of whom now expect three more rate rises next year compared with two when surveyed just weeks ago.

The results, from a survey taken just before the U.S. Senate voted to pass tax cuts that are expected to add about $1.4 trillion to the national debt over the next decade, show economists were already becoming more convinced that rates will need to go even higher.

While about 80 percent of economists surveyed in October said such tax cuts were not necessary, the passage of the bill, President Donald Trump’s first major legislative success, means the forecast risks have shifted toward higher rates, and faster.

The poll’s newly raised expectations for three rate rises next year are now in line with the Fed’s own projections. But they come despite a split among U.S. policymakers on the outlook for inflation, which has remained persistently low.

That is a similar challenge faced by other major central banks, who are generally turning away from easy monetary policy put in place since the financial crisis, looking through still-weak wage inflation and overall price pressures for now.

The core personal consumption expenditures price index (PCE), which excludes food and energy and is the Fed’s preferred inflation measure, has undershot the central bank’s 2 percent target for nearly 5-1/2 years.

The latest Reuters poll results suggest it is expected to average below 2 percent until 2019.

While the U.S. economy expanded in the third quarter at a 3.3 percent annualized rate, its fastest pace in three years, the latest Reuters poll – taken mostly before the release of that data – suggested that may be the best growth rate at least until the second half of 2019.

The most optimistic growth forecast at any point over the next year or so was 3.7 percent, well below the post-financial crisis peak of 5.6 percent in the fourth quarter of 2009.

Still, all the 103 economists polled, including 19 large banks that deal directly with the Fed, said the federal funds rate will go up again in December by 25 basis points, to 1.25-1.50 percent.

“This is about just getting back to a neutral level where monetary policy is neither encouraging growth or pushing against growth,” said Brett Ryan, senior U.S. economist at Deutsche Bank, which recently shifted its view to four rate rises next year.

“The Fed is still accommodative at the moment and we are still some ways away from the neutral fed funds rate which would in the Fed’s view be closer to 2.75 percent. The Fed can hike without slowing the economy.”

Financial markets are also pricing in over a 90 percent chance of a 25 basis-point hike in December, largely based on the falling unemployment rate and reasonably strong economic growth this year.

Asked what is the primary driver behind the Fed’s wish to raise rates further, over 40 percent of respondents said it was to tap down future inflation.

However, almost a third of economists said it is to gather enough ammunition to combat the next recession.

“At some point we are going to have a downturn and they (the Fed) are going to need to react and it is harder to do that when rates are closer to zero,” said Sam Bullard, an economist at Wells Fargo.

The remaining roughly 30 percent had varied responses, including some who said higher rates were needed to avoid risks to financial stability.

Over 90 percent of the 66 economists who answered another question said that the coming changes at the Fed – a new Fed Chair along with several new Fed Board members – will also not alter the current expected course of rate hikes.

“Both the rate tightening outlook and balance sheet reduction program will remain in place as the Fed officials fill open seats. Easing of financial regulation is likely the area that has the most forthcoming changes,” Bullard said.

 

(Additional reporting and polling by Khushboo Mittal and Mumal Rathore; Editing by Ross Finley and Hugh Lawson)