US economy on solid ground on back of falling weekly jobless claims, surging home sales

US economy: Americans who file for new unemployment benefits claims went down last week, as sales of houses owned by people before went up on its highest this year.

This has given a signal of respite and the US economy maintaining solid footing in the first quarter.

Other data on March 13 highlighted stable business activity in the month, even as inflation went high. 

Even a determiner of predicted economic activity turned positive in February for the first time in two years. 

Labour market resilience is the reason behind the United States continuing to outshine its global counterparts.

On March 20, the Federal Reserve did not change interest rates as policymakers upgraded their growth expectations for 2024, hinting at expectations of lower borrowing costs thrice a year by the end of the year. 

The optimistic outlook means it is more unlikely for the US central bank to slash rates before June, according to economists. 

"Companies are not laying off workers and the labor market remains relatively strong," said Christopher Rupkey, chief economist at FWDBONDS in New York. 

And now there are signs of life for existing home sales. This makes easing monetary policy at this juncture more problematic, he added

Preliminary claims for state unemployment benefits went down 2,000 to adjust seasonally at 210,000 for the week ended March 16, according to the Labour Department. 

A Reuters poll by economists forecasted 215,000 claims in the most recent week.

Claims have majorly been in the range of 200,000-213,000 range since February. Even as high-profile layoffs marred the start of 2024, employers have been hiring labour after they had to struggle with finding workers during and after the COVID-19 pandemic.

Unadjusted claims came down by 12,730 to 189,992 last week. 

Applications in California also dropped by 5,369, as filings in Oregon fell 2,580. 

These more than offset considerable gains in Michigan and Missouri.

On March 20, Fed Chair Jerome Powell said he did not see "cracks" in the labour market, calling it to be "in good shape." 

He said that "the extreme imbalances that we saw in the early parts of the pandemic recovery have mostly been resolved." 

The US central bank has upped its benchmark interest rate by 525 basis points to the current 5.25 per cent-5.50 per cent range since March 2022.

The claims data encompassed the survey period for business establishments for the nonfarm payrolls portion of March's employment report. 

Claims were marginally higher between the February and March survey weeks, with  the economy adding 275,000 jobs in February.

Next week’s data is awaited, which will outline the number of people receiving benefits after a preliminary week of aid, a proxy for hiring, thereby offering more clues on the labour market’s health in March. 

The so-called ensuing claims went up by 4,000 to 1.807 million during the week ending March 9, according to the claims report on March 21.

"The labour market is gradually rebalancing, but the adjustment appears to be coming from less hiring rather than a surge in firings," said Rubeela Farooqi, chief US economist at High Frequency Economics. "We expect job growth to slow somewhat but the unemployment rate to remain low this year."

Housing Supply Improves

Stocks on Wall Street were trading higher. The dollar was steady versus a basket of currencies. US Treasury prices fell.

In a separate report on Thursday, the National Association of Realtors said existing home sales jumped 9.5 per cent last month to a seasonally adjusted annual rate of 4.38 million units, the highest level since February 2023. The monthly increase in sales was also the largest since February 2023.

Economists had forecast home resales would fall to a rate of 3.94 million units. Sales were boosted by an improvement in housing supply, with inventory surging 5.9 per cent to 1.07 million units, the highest for any February since 2020. Supply was up 10.3 per cent from one year ago.

Home resales, which account for a large portion of US housing sales, fell 3.3 per cent on a year-on-year basis in February.

The housing market has been battered by the Fed's aggressive monetary policy stance as it fights inflation, and the signs of improvement in supply, together with retreating mortgage rates, bode well for the spring selling season.

Nonetheless, housing inventory is still well below the nearly 2 million units before the pandemic. Homes in many areas, especially in the Northeast, continue to receive multiple offers, pushing out first-time buyers, who accounted for only 26 per cent of transactions last month.

That share is well below the 40 per cent that economists and realtors say is needed for a robust housing market. A fifth of the homes sold last month were above listing price.

Many homeowners have mortgages with rates below 4 per cent, dissuading them from selling their houses, contributing to the supply crunch and higher home prices. The median existing home price increased 5.7 per cent from a year earlier to $384,500 in February. Home prices increased in all four regions, and could remain elevated with supply still likely to lag demand.

"If broader activity remains strong, a further normalisation of home sales and new listings could be an indication that homebuyers are adapting to a higher level of rates," said Veronica Clark, an economist at Citigroup in New York.

The increase in sales means more brokers' commissions, which should boost the residential investment component in the gross domestic product report. Goldman Sachs raised its first-quarter GDP growth estimate to a 1.9 per cent annualised rate from a 1.7 per cent pace. The economy grew at a 3.2 per cent rate in the fourth quarter.

The economy's improving prospects for this year were reflected in a fourth report from the Conference Board showing its leading economic index rebounded 0.1 per cent in February after declining 0.4 per cent in January. That was the first increase since February 2022.

"The economy is poised to continue in expansion mode," said Priscilla Thiagamoorthy, a senior economist a BMO Capital Markets in Toronto.

(With Reuters Inputs)