By Lucia Mutikani
WASHINGTON, Sept 3 (Reuters) - The number of Americans filing claims for unemployment benefits rose marginally last week amid low layoffs, pointing to stable labor market conditions that give the Federal Reserve room to focus on inflation stemming from the Middle East conflict.
The inflation headache was underscored by an Institute for Supply Management survey on Thursday showing a measure of prices paid by services businesses for inputs jumped to a three-year high in August, which
economists said suggested that recent inflation was not confined to the goods sector. Rising price pressures have led economists to expect an interest rate hike from the U.S. central bank by year end.
But Fed Governor Christopher Waller said at a Reuters NEXT Newsmaker event on Thursday that he was inclined to argue in favor of keeping rates steady this month if upcoming data confirmed inflation pressures were cooling off.
"The latest surveys offer support for the idea that the Fed will soon raise interest rates," said Stephen Brown, chief North America economist at Capital Economics. "Nonetheless, as Governor Christopher Waller said earlier today, such a decision will still be based almost entirely on the forthcoming CPI and PPI data."
Initial claims for state unemployment benefits climbed 2,000 to a seasonally adjusted 206,000 for the week ended August 29, the Labor Department said. Economists polled by Reuters had forecast 205,000 claims for the latest week. The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 8,000 to a seasonally adjusted 1.779 million during the week ended August 22.
Economists continued to view the labor market as being in a "slow hire, slow fire" mode. A separate report from global outplacement firm Challenger, Gray & Christmas showed planned job cuts by U.S.-based companies increased 58% to 52,881 in August. Still, the tally was the lowest for any August since 2022 and announced layoffs so far this year are down 41% compared to the same period last year.
Labor market stability was also evident in the Fed's Beige Book report on Wednesday, which described employment as having risen "very slightly" in August, noting that "healthy labor demand was seen most frequently in manufacturing, construction and some service sectors, while retail and hospitality sectors saw falling labor demand."
The government is expected to report on Friday that nonfarm payrolls rebounded by 56,000 jobs last month after declining 23,000 in July, a Reuters survey of economists showed. The unemployment rate is forecast unchanged at 4.1%.
The anticipated recovery would partly reflect a rebound in local government education payrolls. But some economists believe a second straight month of job losses could not be ruled out after Temporary Protected Status for hundreds of thousands of Haitians recently ended, impacting their work authorization.
Payrolls also have a tendency to undershoot expectations in August. In the absence of labor market deterioration, economists say a rate hike remains on the table, especially with the ISM survey's measure of prices paid by businesses for inputs rising to 72.6 in August, the highest reading since August 2022, from 70.3 in July. They viewed the high reading as suggesting inflation could stay above the Fed's 2% target for a while.
STRONG DOMESTIC DEMAND
Higher prices are being driven by strong domestic demand, a combination of consumer spending and an artificial intelligence investment frenzy, which is running into supply constraints.
The survey's measure of new orders received by services businesses surged to 60.9, the highest reading since February 2023, from 57.2 in July. The ISM's nonmanufacturing Purchasing Managers' Index rose to 55.4 last month from 54.1 in July. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.
Some of the domestic demand is, however, being satiated with imports, causing a deterioration in the trade deficit. A third report from the Commerce Department's Bureau of Economic Analysis and Census Bureau showed the trade shortfall increased 24.4% to $88.6 billion in July.
Imports increased 2.8% to $399.3 billion in July. Goods imports shot up 3.7% to $320.6 billion. Imports of capital goods jumped $14.4 billion to a record high $140.3 billion, reflecting strong increases in computers, computer accessories and semiconductors, likely related to the AI buildout.
But imports of industrial supplies and materials, which include petroleum, dropped $1.8 billion. Crude oil imports fell $1.8 billion amid lower prices.
Exports decreased 2.1% to $310.7 billion, with goods shipments dropping 3.0% to $201.0 billion. They were led by an $8.7 billion decline in industrial supplies and materials, mostly crude oil as well as nonmonetary gold, which is excluded in the calculation of gross domestic product. Capital goods exports, however, increased $1.9 billion. Consumer goods exports rose $1.7 billion, lifted by pharmaceutical preparations.
The goods trade deficit widened 17.3% to $119.6 billion in July. When adjusted for inflation, the goods trade deficit increased 12.7% to $106.4 billion, on track to impose another large drag on economic growth. Trade subtracted 1.14 percentage points from GDP growth in the April-June quarter. The economy grew at a 1.5% annualized rate last quarter.
Imports of services decreased $0.6 billion to $78.7 billion in July, pulled down by charges for the use of intellectual property. Imports of transport services fell but those of travel services increased. Exports of services dipped $0.4 billion to $109.7 billion amid declines in travel, financial and transport services. Charges for the use of intellectual property rose as did exports of other business services.
Despite aggressive tariffs on imports, the United States posted record goods trade deficits with Mexico, Vietnam, Taiwan, Thailand, South Korea and Malaysia. The goods trade balance with Switzerland swung into deficit, while the shortfall with Canada decreased $3.7 billion to $3.2 billion in July. The U.S. and Canada are embroiled in a trade war.
"The best quarters for real GDP growth under the Trump administration in the middle of 2025 were boosted by the trade deficit falling sharply, but now the shoe is on the other foot and economic growth in the current quarter will be restrained by the jump in net exports," said Christopher Rupkey, chief economist at FWDBONDS.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
