By Lucia Mutikani

WASHINGTON (Reuters)

The number of Americans filing new applications for unemployment benefits rose marginally last week. However, the devastation unleashed by Hurricane Helene in the U.S. Southeast, as well as strikes at Boeing (NYSE:BA) and ports, could distort the labor market in the near term.

The Labor Department’s report on Thursday showed the labor market gliding at the end of the third quarter. This could allow the Federal Reserve to delay large interest rate cuts.

“For the moment, the labor market looks steady as a rock and the economy appears to have missed falling headlong over the cliff into the depths of recession,” said Christopher Rupkey, chief economist at FWDBONDS. “Fed officials are unlikely to hurry ahead with aggressive interest rate cuts unless the labor market deteriorates further.”

Initial claims for state unemployment benefits increased by 6,000 last week to a seasonally adjusted 225,000 for the week ending September 28. Economists polled by Reuters had forecast 220,000 claims for the latest week.

Unadjusted claims fell 1,066 to 180,647 last week. The decline was less than the anticipated drop of 5,692, leading to a rise in seasonally adjusted claims. Only Michigan reported filings above 1,000.

Overall claims remain at levels consistent with a stable labor market, supported by low layoff numbers.

The calm could be temporarily shattered after Hurricane Helene wreaked havoc in North Carolina, South Carolina, Georgia, Florida, Tennessee, and Virginia, damaging homes and infrastructure and killing at least 162 people across the six states. U.S. Homeland Security Secretary Alejandro Mayorkas stated that recovery would involve a “multibillion-dollar undertaking” lasting years.

Work stoppages by about 30,000 machinists at Boeing and 45,000 dockworkers at East Coast and Gulf Coast ports are also expected to complicate the labor market outlook. While striking workers aren’t eligible for unemployment benefits, their actions could affect the supply chain and lead to temporary layoffs.

Boeing announced temporary furloughs for tens of thousands of employees, including many U.S.-based executives, managers, and employees.

The dollar edged up against a basket of currencies, and U.S. Treasury yields rose.

UNEMPLOYMENT ROLLS LITTLE CHANGED

The number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 1,000 to a seasonally adjusted 1.826 million during the week ending September 21. Continuing claims have stabilized after reaching over 2.5-year highs in July due to policy changes in Minnesota allowing non-teaching staff to file for jobless aid during summer school holidays.

The slowdown in the labor market is driven by cooler hiring following 525 basis points of rate hikes from the U.S. central bank in 2022 and 2023 to combat inflation.
The Fed cut its benchmark interest rate by 50 basis points to the 4.75%-5.00% range last month, acknowledging growing risks to the labor market.

Fed Chair Jerome Powell indicated this week that policymakers would likely proceed with quarter-percentage-point rate cuts, reflecting the economy’s resilience confirmed by upward revisions to growth data last week.

Financial markets expect the Fed to cut rates again in November and December.

The claims data do not impact September’s employment report as they fall outside the survey week. According to a Reuters survey, nonfarm payrolls likely increased by 140,000 last month after rising by 142,000 in August. Job gains have averaged 202,000 per month over the past year.

If the Boeing and ports strikes continue beyond next week, they could affect October payrolls ahead of the November 5 presidential election.

The unemployment rate is expected to remain unchanged at 4.2% in September, having increased from 3.4% in April 2023 due to a surge in immigration boosting the labor supply.