The number of people collecting unemployment benefits in the US fell to its lowest in 44 years, astonishing economists and prompting further expectations of an interest rate hike for the Federal Reserve at its next meeting on 15 March.
There were 223,000 jobless claims in the week ending 25 February, a 19,000 fall from the previous week, according to the US Department of Labor – and well below a consensus of around 243,000.
The decrease in jobless claims helped the trade-weighted dollar index to build further on its strongest performance since early January, peaking at 102.180 points.
The data adds to signs the US labour market is reaching full employment, as employers become less willing to fire workers for fear of being unable to replace them.
The data comes after multiple Federal Reserve officials seemingly prepared the markets for a rise in the federal funds rate.
Lael Brainard, generally considered to be one of the more dovish members of the rate-setting Open Market Committee, added her voice to the chorus in favour of tightening, saying it will be “appropriate soon” to raise rates with “full employment within reach”.
That added to comments by the influential head of the New York Fed, William Dudley earlier in the week, which prompted the market’s implied probability for a rate rise at the next meeting to rise sharply.
There is more than a three-in-four chance of a rate hike according to CME Group’s calculations, while other measures indicate an even higher probability.
The Fed’s hand has been further strengthened by the rise in the personal consumption expenditure index, their preferred measure of inflation, which rose by 1.9 per cent year-on-year.
While the Fed’s two per cent inflation target is symmetrical – meaning it can comfortably rise above target, unlike the European Central Bank, for instance – the rise in prices makes it easier politically to raise rates.
The "astonishing" data provide "more ammunition for Fed hawks", according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The strong data have implications for the crucial non-farm payrolls figures, due on Friday 10 March. "These data are consistent with our view that payroll growth will remain over 200K for the next few months, at least, and that the unemployment rate is set to hit new lows," Shepherdson said.