Economic data released Thursday showed improvement in both weekly U.S. jobless claims for the week ending March 12 and housing starts in February. The number of building permits remained elevated, despite a small decrease on the month.
New filings for jobless claims, a proxy for job layoffs, fell below the pre-pandemic level once again last week to 214,000, according to the Department of Labor. That marked a 15,000 drop from the prior week and a continuing testament to how tight the labor market has been. The significant gap between the demand for labor and the supply of labor has kept layoffs historically low because firms are holding onto their workers a lot longer.
However, we do not expect initial jobless claims to move down further another notch as coming headwinds will likely slow down labor demand. The two most notable ones are rising prices—due to persistent inflation and the current geopolitical conflict in Ukraine—and the Fed’s interest rate hikes.
Our preferred measure to take out the weekly noise in the series—the 13-week moving average for claims—continued to tell a similar story; the trend has been flat and anchored around the 2019 pre-pandemic level since January, even when factoring in the temporary bumps in new claims due to the omicron surge.
Housing data released by the Census Bureau on Thursday also showed continuing improvement. Housing starts posted a sharp rise in February, up by 6.8%, after falling 5.5% the month before because of the omicron surge and unusual cold weather in January. The total number of housing starts exceeded 1.7 million for the third time in the last four months since November as builders have been catching up with strong demand for housing. It is not a coincidence that November was the turning point for housing supply as our RSM US Supply Chain Index signaled the bottom of the supply chain issues in October.
Building permits slowed slightly in February, down 1.9% to 1.859 million. For broader context, however, that number of permits is still higher than the often-used long-run equilibrium of housing supply at 1.5 million.
The number of houses completed on the month increased by 5.9%, driven by a 12.1% increase in single-family homes. Multi-family home completion, on the other hand, dropped 12.4%.
The takeaway
With a number of significant headwinds coming in the next couple of months, namely rate hikes and rising prices, we should expect a slower growth rate of the economy in the first quarter of the year. This will certainly spill over to the labor and housing markets, but we expect this slower growth will ease some of the pressure from labor and housing shortages in the last couple of months.
