By Lucia Mutikani
WASHINGTON (Reuters) -The number of Americans filing new applications for jobless benefits fell more than expected last week, reversing the prior week's jump and suggesting that a gradual labor market slowdown remained in place.
Other data on Thursday showed the economy grew faster than previously estimated in the third quarter, driven by robust consumer spending. The upbeat report came a day after the Federal Reserve delivered a third consecutive interest rate cut, but projected only two rate reductions in 2025, citing the economy's continued resilience and still-elevated inflation.
Fed Chair Jerome Powell told reporters on Wednesday that the "downside risks of the labor market do appear to have diminished," adding that "the U.S. economy has just been remarkable, I feel very good about where the economy is."
"The economy is set to end 2024 on a solid note, which is fortunate since we'll have to contend with heightened policy uncertainty and possibly greater challenges in 2025," said Oren Klachkin, financial markets economist at Nationwide.
Initial claims for state unemployment benefits dropped 22,000 to a seasonally adjusted 220,000 for the week ended Dec. 14, the Labor Department said. Economists polled by Reuters had forecast 230,000 claims for the latest week. They had jumped 17,000 in the prior week. Claims have entered a period of volatility, which could see large swings in the data.
Unadjusted claims plunged 57,932 to 251,527 last week, pulled down by large decreases in New York, California, Georgia, Illinois, Michigan, Minnesota, Texas, Washington state, Wisconsin, New Jersey and Ohio.
A range of indicators, including job openings, suggests that conditions are much looser than they were before the COVID-19 pandemic, but the labor market is slowing in an orderly fashion.
A jump in the unemployment rate to 4.3% in July from 3.7% at the start of the year saw the U.S. central bank kicking off its policy easing cycle with an unusually large half-percentage-point interest rate cut in September. The Fed on Wednesday cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range.
In September, the Fed had penciled in four quarter-point rate cuts in 2025. The shallower rate cut path for next year in the latest projections also reflected uncertainty over policies from President-elect Donald Trump's incoming administration, including tariffs on imported goods, tax cuts and mass deportations of undocumented immigrants, which economists have warned would be inflationary.
The Fed hiked its policy rate by 5.25 percentage points between March 2022 and July 2023 to tame inflation.
The dollar was steady against a basket of currencies. U.S. Treasury yields rose.
ROBUST CONSUMER SPENDING
The claims data covered the week during which the government surveyed businesses for the nonfarm payrolls component of December's employment report. Claims rose marginally between the November and December survey periods.
Nonfarm payrolls increased by 227,000 jobs in November, in part boosted by the fading drag from hurricanes and the end of strikes by factory workers at Boeing (NYSE: BA ) and another small aerospace company. These factors had restricted job growth to only 36,000 in October.
Data next week on the number of people on unemployment rolls will shed more light on the labor market's health in December.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 5,000 to a seasonally adjusted 1.874 million during the week ending Dec. 7, the claims report showed.
The labor market resilience, mostly reflecting historic low layoffs, has been driving the economic expansion through strong consumer spending.
A separate report from the Commerce Department showed stronger economic growth than previously estimated in the third quarter. Gross domestic product increased at an upwardly revised 3.1% annualized rate, the Commerce Department's Bureau of Economic Analysis said in its third estimate of third-quarter GDP. The economy was previously reported to have expanded at a 2.8% pace last quarter.
Economists forecast GDP would be unrevised. The revision reflected upgrades to consumer spending and export growth, which offset a downward revision to private inventory investment and upward revision to imports.
The economy grew at a 3.0% pace in the April-June quarter. It is expanding at a pace that is well above what Fed officials regard as the non-inflationary growth rate of around 1.8%.
Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 3.7% pace. That was revised up from the previously estimated 3.5% rate.
A measure of domestic demand that excludes government spending, trade and inventories increased at a 3.4% pace. Final sales to private domestic purchasers were previously estimated to have risen at a 3.2% rate. Domestic demand increased at a 2.7% pace in the second quarter.
National after-tax profits without inventory valuation and capital consumption adjustments decreased $15.0 billion, or 0.4%. They were previously estimated to have risen $0.2 billion, or unchanged in percentage terms.
When measured from the income side, the economy grew at a 2.1% rate last quarter, lowered from the initially estimated 2.2% pace. Gross domestic income (GDI) increased at a 2.0% rate in the second quarter.
In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data. Annual benchmark revisions have sharply narrowed the gap between GDP and GDI.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.6% rate. That was revised up from the 2.5% rate reported last month. Gross domestic output grew at a 2.5% pace in the April-June quarter.