By Lucia Mutikani
WASHINGTON, April 16 (Reuters) - New applications for U.S. unemployment benefits fell last week, suggesting labor market conditions remained stable, though employers are cautious about increasing headcount as the war with Iran casts a shadow over the economy.
A surge in oil prices and the accompanying rise in inflation pressures because of the conflict have pushed consumer sentiment to record lows, and economists warned households could scale back spending, with ripple effects on the labor
market. Some expected labor market weakness because of the oil price shock.
"At some point, elevated energy costs and prices for materials will cause firms to lay off marginal workers to protect profit margins," said Carl Weinberg, chief economist at High Frequency Economics. "Just keep in mind that in the 1973 oil shock, it took about three months for claims to start to rise in any meaningful way."
Initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 207,000 for the week ended April 11, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week.
Claims remained in their 201,000-230,000 range for this year. While layoffs remain low, the U.S.-Israel war with Iran could be hindering hiring.
The Federal Reserve's Beige Book report on Wednesday showed "several districts noted increased demand for temporary or contract workers, as firms remained cautious about committing to permanent hires."
The report based on information collected in early April also noted the Middle East conflict "was cited as a major source of uncertainty that complicated decision-making around hiring, pricing and capital investment, with many firms adopting a wait-and-see posture."
Oil prices have soared more than 35% since the war started at the end of February. Gasoline and diesel prices have increased sharply. Higher oil prices raised consumer and producer prices in March, government data showed recently. President Donald Trump has imposed a blockade of the Strait of Hormuz, halting seaborne trade in and out of Iran.
U.S. stocks opened slightly higher. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.
LABOR MARKET IN A HOLDING PATTERN
The labor market was already in a holding pattern prior to the war, blamed by economists on uncertainty stemming from Trump's sweeping import tariffs and mass deportations. The Middle East conflict was just another layer of uncertainty for businesses, economists said.
Continued labor market stability is seen giving the Federal Reserve room to keep interest rates unchanged for some time while policymakers monitor the inflation fallout from the war. The U.S. central bank last month left its benchmark overnight interest rate in the 3.50%-3.75% range.
The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 31,000 to a seasonally adjusted 1.818 million during the week ended April 4, the claims report showed.
The so-called continuing claims have dropped from last year's lofty levels likely in part due to people exhausting their eligibility for benefits, limited to 26 weeks in most states. The data does not include some unemployed young workers, who typically have a limited or no work history.
The job market for young adults is tough. The unemployment rate for the 20-to-24-year-old age group was at 6.4% in March. In contrast, the overall jobless rate was at 4.3%.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
