U.S. labor market strengthening, factories struggling

Thu Dec 17, 2015 11:41am EST
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By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits last week fell from a five-month high, suggesting sustained labor market healing that could lead to further Federal Reserve interest rate hikes next year.

The sign of underlying economic strength came a day after the U.S. central bank raised its benchmark overnight interest rate by 25 basis points to between 0.25 percent and 0.50 percent, the first increase in nearly a decade.

"The labor market continues to stay tight with demand for workers strong and pockets of actual shortages in many industries. The Fed has achieved the employment part of its dual mandate and this is what triggered the rates liftoff yesterday," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. Initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 271,000 for the week ended Dec.12, the Labor Department said on Thursday.

It was the 41st straight week that claims remained below 300,000, a threshold associated with strong labor market conditions. That is the longest such run since the early 1970s.

The four-week moving average of claims, considered abetter measure of labor market trends as it strips outweek-to-week volatility, slipped 250 to 270,500 last week.

The Fed said in its policy statement on Wednesday that there had been "further improvement" in the labor market and that "underutilization of labor resources" had diminished appreciably since the beginning of the year.

Despite the labor market momentum, there remains no respite for the manufacturing sector, which has been slammed by a robust dollar, deep spending cuts by energy firms, weak global demand and efforts by businesses to reduce an inventory glut.

A separate report from the Philadelphia Federal Reserve showed its gauge of manufacturing activity in the region fell to -5.9 this month from 1.9 in November. It was the third negative reading in the past four months.   Continued...

Job seekers stand in line to meet with prospective employers at a career fair in New York City, October 24, 2012. REUTERS/Mike Segar