US labor market on solid footing; rising mortgages pressuring housing sector

WASHINGTON, Sept 17 (Reuters) - The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, though the decline was likely exaggerated by the Labor Day holiday, with the underlying trend pointing to continued labor market stability.

The labor market has regained its poise after wobbling through much of summer. That gives the Federal Reserve room to focus on fighting ‌inflation stemming from the Middle East conflict. The US central bank on Wednesday raised interest rates for the first time since July 2023 and flagged further increases in borrowing costs in the months ahead.

"The ‌exceptionally depressed number last week might reflect seasonal adjustment issues related to Labor Day, but the underlying picture remains encouraging," said Samuel Tombs, chief US economist at Pantheon Macroeconomics. "For now, then, the Fed will remain laser-focused on inflation."

Initial claims for state unemployment benefits dropped 10,000 to ​a seasonally adjusted 196,000 for the week ended September 12, the lowest level since mid-July, the Labor Department said on Thursday. Economists polled by Reuters had forecast 208,000 claims for the latest week.

The surprise drop likely reflected volatility around last Monday's holiday. Claims are difficult to adjust for seasonal fluctuations around moving public holidays. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,750 to 203,250 last week.

Fed Chairman Kevin Warsh singled out the labor market as "one basic sign of strength," adding that policymakers believed "that the unemployment rate is basically running consistent with full employment." The Fed's overnight benchmark interest rate was hiked by 25 basis points to the 3.75%-4.00% ‌range.

The claims data covered the week during which the government surveyed employers for ⁠the nonfarm payrolls component of September's employment report. The four-week average of claims was little changed between the August and September survey weeks, suggesting steady labor market conditions.

Nonfarm payrolls increased by 162,000 jobs in August after job growth slowed sharply in the prior three months. The claims report showed the number of people receiving unemployment benefits after an initial ⁠week of aid, a proxy for hiring, dropped 39,000 to a seasonally adjusted 1.730 million during the week ended September 5, the lowest level since January 2024.

Economists said the so-called continuing claims had also been impacted by seasonal adjustment issues.