WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits unexpectedly fell last week, dropping to its lowest level in nearly 45 years as the labor market tightened further, bolstering expectations of faster wage growth this year.
The second straight weekly decline in claims reported by the Labor Department on Thursday also pointed to strong job growth momentum, which could further drive the unemployment rate lower.
“The extremely low level of claims is a sign of tightness in the labor market and suggests that February is shaping up to be another solid month for job creation,” said John Ryding, chief economist at RDQ Economics in New York.
Initial claims for state unemployment benefits decreased 9,000 to a seasonally adjusted 221,000 for the week ended Feb. 3, the Labor Department said. Claims fell to 216,000 in mid-January, which was the lowest level since January 1973.
Economists polled by Reuters had forecast claims rising to 232,000 in the latest week. Last week marked the 153rd straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was much smaller.
The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent. The tighter labor market is starting to exert upward pressure on wage growth.
The Labor Department reported last week that average hourly earnings jumped 2.9 percent year-on-year in January, the largest gain since June 2009, after advancing 2.7 percent in December. Employers added 200,000 jobs to their payrolls last month.
Strong wage growth supports optimism among Federal Reserve officials that inflation will increase toward the U.S. central bank’s 2 percent target this year. U.S. financial markets expect the Fed will raise interest rates in March.
The Fed has forecast three rate increases for this year after lifting borrowing costs three times in 2017.
Prices for U.S. Treasuries fell, with the yield on the benchmark 10-year note rising to a near four-year high also as the Bank of England said interest rates probably need to rise sooner. The dollar was little changed against a basket of currencies. Stocks on Wall Street were trading lower.
“For Fed officials it is damn the torpedoes and plunging stock prices and keep with the game plan to raise rates gradually as the economy is showing increasing signs of overheating,” said Chris Rupkey, chief economist at
MUFG in New York. “The Fed may be out of step with current economic conditions and behind the curve.”
Last week, the four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, declined 10,000 to 224,500, the lowest level since March 1973.
The claims report also showed the number of people receiving benefits after an initial week of aid fell 33,000 to 1.92 million in the week ended Jan. 27. The four-week moving average of the so-called continuing claims rose 12,500 to 1.95 million.
Reporting by Lucia Mutikani; Editing by Andrea Ricci and Phil Berlowitz