WASHINGTON, Nov 12 (Reuters) - The number of Americans filing new claims for unemployment benefits increased more than expected last week, but remained at a level consistent with a stable labor market, allowing the Federal Reserve to focus on fighting inflation.
Economists expect layoffs to remain low through the end of the year, though seasonal volatility related to the holiday season could cause some spikes in the claims data. The government last week reported a surge in nonfarm payrolls in October and a decline in the unemployment rate to 4.1% from 4.2% in September. The resilience in the labor market is despite the ongoing Middle East conflict, which is boosting inflation.
"Firms are continuing to hold on to labor," said Olivia Cross, senior US economist at Pantheon Macroeconomics. "We expect layoffs to remain low through the fourth quarter, but then come under some pressure next year in response to the recent tightening of financial conditions and the growing use of AI by firms."
Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 200,000 for the week ended November 7, the Labor Department said on Thursday. Economists polled by Reuters had forecast 195,000 claims for the latest week.
Claims have stayed at or below 200,000 since mid-September and remain close to the 189,000 level touched in mid-July, the lowest since 1969, raising the prospect that the labor market could be tightening. But with wages growing at a moderate pace, most economists do not believe that is the case.
Some argue that a smaller workforce, due to retirements and the Trump administration's immigration crackdown, is the key driver of the historically low level of claims.
"A generally smaller labor force could mean fewer workers to file for unemployment insurance," said Veronica Clark, an economist at Citigroup. "Of course, this would still be consistent with a low unemployment rate, with continuing claims suggesting the unemployment rate may even fall further towards around 4.0% in data by early 2027."
The claims report showed that the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, fell 20,000 to a seasonally adjusted 1.697 million during the week ended October 31. But the so-called continuing claims do not include some unemployed people, such as recent college graduates and others who have little or no work history.
Some people might also have exhausted their eligibility for benefits, limited to 26 weeks in most states, keeping continuing claims at relatively low levels. The median duration of unemployment jumped to 11.9 weeks in October, the longest since November 2021, from 11.5 weeks in September.
Though businesses have been hoarding workers, they have remained reluctant to increase headcount, with economists citing uncertainty from the US-Israeli war with Iran, now in its ninth month. Businesses were also unsure of their staffing needs as they embraced AI.
US central bank Governor Michael Barr warned on Thursday the nation should be prepared for "serious short-term disruptions" to the job market because of AI, which he said, depending on how fast it is deployed, could begin displacing workers at scale and widening inequality in favor of investors.
Stocks on Wall Street were trading lower as Nvidia CEO Jensen Huang's exit and rising oil prices following comments by President Donald Trump that the US did not need a deal with Iran weighed on sentiment. The dollar advanced against a basket of currencies. US Treasury yields rose.
HOUSE PRICES STILL ELEVATED
Government data this week showed consumer prices increasing faster than expected in October. That, together with comments from Fed Governor Christopher Waller, prompted financial markets to almost fully price in a 25-basis-point rate hike in December, and to anticipate another increase in January.
The Fed left its benchmark overnight interest rate in the 3.75%-4.00% range last month. While the labor market continues to hold up, rising mortgage rates stemming from the Iran war are depressing the interest-rate-sensitive housing market.
Sales of previously owned homes tumbled 5.5% in October to a seasonally adjusted annual rate of 3.75 million units, the National Association of Realtors said in a separate report. That was the lowest level since August 2010, when sales were declining as a homebuyers tax credit ended. The incentive was aimed at stimulating demand following the 2008 global financial crisis.
Economists had forecast home resales falling to a rate of 3.85 million units. Sales plunged 8.8% on a year-over-year basis in October. The drop in sales was across all price categories, including those priced $1 million and above, which had experienced strong growth in prior months.
The 30-year fixed mortgage rate jumped above 7% in late August, rising to 7.40% by mid-September, for a total of 142 basis points since the US and Israel attacked Iran at the end of February, data from mortgage finance agency Freddie Mac showed.
It averaged 7.11% in the latest week, down from 7.18% in the prior week.
"Home buying is difficult when mortgage rates have climbed to their highest levels since 2000, aside from a single month in 2023," said Lawrence Yun, the NAR's chief economist.
The NAR's Housing Affordability Index dropped to 100.7 from 107.3 in October 2025.
Existing housing inventory increased 1.3% to 1.590 million units, the highest level since November 2019. Supply rose 4.6% from a year ago. At October's sales pace, it would take 5.1 months to exhaust the current inventory of existing homes, the most since November 2015. That was up from 4.4 months a year ago. The median existing home price last month advanced 0.4% from a year ago to $421,900, the highest for any October.
First-time buyers accounted for 29% of sales, down from 32% a year ago. A 40% share in this category is needed for a robust housing market. The housing market weakness is demand-related, with higher prices keeping distressed sales at a negligible 2%.
"With mortgage rates expected to remain above 7% through most of 2027, we expect home sales to remain below 4 million until late next year," said Nancy Vanden Houten, lead US economist at Oxford Economics.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci
