WASHINGTON (Reuters) -The number of Americans filing new applications for jobless benefits fell to a three-month low last week, pointing to stable labor market conditions, though sluggish hiring is making it harder for many laid-off workers to land new opportunities.

The lack of material labor market deterioration likely gives the Federal Reserve cover to keep interest unchanged next week amid signs that President Donald Trump's aggressive tariffs on imports were starting to lift inflation. That was underscored by a survey from S&P Global on Thursday showing businesses asked higher prices for goods and services in July.

Trump is pressuring the U.S. central bank to resume its interest rate cuts. Economists expect the Fed will keep its benchmark interest rate in the 4.25%-4.50% range after the end of a two-day policy meeting next Wednesday. The Fed cut rates three times in 2024, with the last move coming in December.

  "Trump 2.0 economic policies have not brought the economy to its knees yet although whether this continues to be the case going forward remains an open question," said Christopher Rupkey, chief economist at FWDBONDS. "The weekly jobless claims give Fed officials no cover whatsoever if they are seriously thinking of cutting interest rates at next week's meeting." 

Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 217,000 for the week ended July 19, the lowest level since April, the Labor Department said. Economists polled by Reuters had forecast 226,000 claims for the latest week. Claims have declined for six straight weeks and have pulled further away from an eight-month high touched in June.

Unadjusted claims decreased by 45,319 to 215,792 last week.

Though there have been some layoffs, employers have been mostly reluctant to fire workers, opting instead to scale back on hiring while awaiting more clarity on the Trump administration's protectionist trade policy.

Uncertainty over where tariff levels will eventually settle continued to weigh on business sentiment in July, the survey from S&P Global showed, even as activity picked up. The survey's measures of prices paid by businesses for inputs as well as what they charged for goods and services rose this month.

S&P Global said about 40% of service providers reporting higher selling prices explicitly mentioned tariffs, while just under half of their counterparts in manufacturing blamed the import duties. Employment levels at businesses remained steady, the survey also showed, aligning with the low jobless claims data.

Stocks on Wall Street were mixed. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.

LACKLUSTER HIRING

There is still a chance that claims could push higher. Claims have tended to increase in July, in part due to the temporary motor vehicle assembly plant shutdowns, whose varied timing can throw off the model the government uses to strip out seasonal fluctuations from the data.

Though job growth has slowed from last year, the labor market remains stable. Nonetheless, the hesitancy by businesses to boost hiring has left many of those who are out of work to experience long spells of unemployment. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 4,000 to a seasonally adjusted 1.955 million during the week ending July 12, the claims report showed. 

The so-called continuing claims covered the period during which the government surveyed households for July's unemployment rate. Continuing claims eased slightly between the June and July survey weeks. 

While economists said the elevated continuing claims reading posed an upside risk to the unemployment rate, they mostly expected it to hold steady at 4.1% this month. A decline in labor supply amid reduced flows of immigrants means the economy now only needs to create roughly 100,000 or fewer jobs per month to keep up with growth in the working-age population.

The drop in the unemployment rate in June after holding at 4.2% for three straight months was mostly because people dropped out of the labor force.

"Labor supply is growing much more slowly in 2025 due to immigration policy changes, so the unemployment rate can likely hold steady even if payrolls increase much more slowly in the second half of 2025 than in 2023 or 2024," said Bill Adams, chief economist at Comerica Bank.

But high borrowing costs and economic uncertainty are hurting the housing market.

New home sales increased 0.6% to a seasonally adjusted annualized rate of 627,000 units in June, a third report from the Commerce Department's Census Bureau showed. That was below economists' expectations for a rise to a rate of 650,000 units.

Sales fell 6.6% on a year-over-year basis in June. The inventory of unsold homes on the market increased to 511,000 units, the highest level since October 2007, from 505,000 in May. That could make it difficult for builders to break more ground on new single-family housing projects.

Government data last week showed single-family homebuilding dropped to an 11-month low in June while permits for future construction declined to more than a two-year low. Economists expect that residential investment, which includes homebuilding and home sales through broker commissions, likely remained a drag on gross domestic product in the second quarter.

"We think renewed weakness in the housing sector this year, with residential investment likely to decline again in the second quarter, is the best evidence that rates are still at restrictive levels," said Veronica Clark, an economist at Citigroup.