Jobless claims drop by 20,000 despite Fed efforts to cool economy

The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to continued labor market strength, though financial markets turmoil is casting a shadow over the economy.

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 192,000 for the week ended March 11, the Labor Department said on Thursday.

Economists polled by Reuters had forecast 205,000 claims for the latest week.

Despite major technology companies slashing jobs, the labor market has remained resilient, with employers generally reluctant to lay off workers after struggling to find labor during the COVID-19 pandemic.

Labor market tightness, marked by 1.9 job openings for every unemployed person in January, together with stubbornly high inflation argue for the Federal Reserve to continue raising interest rates next week.

But the recent collapse of two regional banks has sparked fears of contagion in the banking sector, bruising the stock market and casting a pall over the economy’s outlook.

Financial markets have wavered between the Fed hiking rates by a quarter-point and pausing its monetary policy tightening campaign when policymakers meet next Tuesday and Wednesday, according to CME Group’s FedWatch tool.

As recently as last week, they were betting on a 50-basis-points rate hike.

Those expectations were dialed back to a quarter-point after the government reported the economy added 311,000 jobs in February, but with wage gains slowing and the unemployment rate rising to 3.6% from 3.4% in January.

The central bank has raised its benchmark overnight interest rate by 450 basis points since last March, from near zero to the current 4.50%-4.75% range.

The claims report also showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased 29,000 to 1.684 million during the week ending March 4.

The so-called continuing claims remain low, suggesting some laid-off workers could be easily finding new work.