Labor Market Softening; Imported Inflation Benign

The number of Americans filing applications for unemployment benefits increased more than expected last week, suggesting the labor market was slowing, but probably not to the extent implied by a near-stall in job growth in February.

While other data on Thursday showed import prices rising in February by the most in nine months, the trend in imported inflation remained weak. Import prices dropped on a year-on-year basis for a third straight month in February.

News on the housing market remained downbeat, with new home sales dropping more than expected in January. The stream of data remains broadly supportive of the Federal Reserve’s pledge to be “patient” before raising interest rates further this year. “If the Fed is reading the tea leaves the economic brew of data are distinctly on the weak side today, and will keep Fed policy cemented in place at next week’s meeting,” said Chris Rupkey, chief economist at MUFG in New York.

Fed officials are scheduled to meet next Tuesday and Wednesday to decide on monetary policy.

Initial claims for state unemployment benefits rose 6,000 to a seasonally adjusted 229,000 for the week ended March 9, the Labor Department said on Thursday. Data for the prior week was unrevised. The Labor Department said no states were estimated.

Economists polled by Reuters had forecast claims rising to 225,000 in the latest week. Claims have been hovering in the middle of their 200,000-253,000 range this year.

The labor market is slowing as workers become scarcer. Hiring is also being constrained by a weakening economy as stimulus from a $1.5 trillion tax cut diminishes. Washington’s trade war with Beijing, slowing demand overseas and uncertainty over Britain’s exit from the European Union are also hurting economic activity.

The government reported last week that nonfarm payrolls increased by only 20,000 jobs in February, the weakest since September 2017, in part as payback after hefty gains in the prior two months. But the unemployment rate dropped two-tenths of a percentage point to 3.8 percent and annual wage growth was the strongest since 2009.

Separately, on Thursday, the Commerce Department said new home sales declined 6.9 percent to a seasonally adjusted annual rate of 607,000 units in January. December’s sales pace was revised higher to 652,000 units from the previously reported 621,000 units.

Economists had forecast new home sales, which account for about 11 percent of housing market sales, slipping 0.6 percent to a pace of 620,000 units in January.

HOUSING SOFT PATCH

Affordability remains a challenge, especially at the lower end of the market, even as mortgage rates have dropped from last year’s lofty levels and house price inflation has slowed.

Expensive lumber as well as land and labor shortages continue to constrain builders. Economists expect the housing market, which hit a soft patch last year, to remain sluggish through the first half of 2019.

Investment in home building contracted 0.2 percent in 2018, the weakest performance since 2010.

The dollar was trading higher against a basket of currencies. Treasury prices rose, while stocks on Wall Street fell.

In a third report on Thursday, the Labor Department said import prices rose 0.6 percent last month, boosted by increases in the costs of fuels and consumer goods. That was the biggest gain since May and followed an upwardly revised 0.1 percent rise in January.

Economists polled by Reuters had forecast import prices rising 0.3 percent in February after a previously reported 0.5-percent drop in January.

In the 12 months through February, import prices fell 1.3 percent. That followed a 1.6-percent decline in January.

The report came on the heels of data showing tame producer and consumer inflation readings in February. The jump in the monthly import prices probably does not change economists’ expectations that inflation will remain moderate through the first half of 2019, and allow the Fed to stay pat on interest rates. The U.S. central bank raised rates four times last year

Last month, prices for imported fuels and lubricants rose 4.9 percent after increasing 4.1 percent in January. Prices for imported petroleum increased 4.7 percent after rebounding 7.1 percent in January.

But food prices fell 0.8 percent in February after decreasing 0.4 percent in the prior month. Excluding fuels and food, import prices rebounded 0.2 percent last month after falling 0.3 percent in January.

The so-called core import prices fell 0.3 percent in the 12 months through February. Increases in core import prices have been curbed by last year’s strength in the dollar. Prices for imported consumer goods excluding automobiles rose 0.3 percent in February, reversing January’s drop.

The cost of goods imported from China was unchanged in February after dropping 0.3 percent in the prior month. Prices of Chinese imports dropped 0.7 percent in the 12 months through February, the biggest decline since October 2017.