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Weekly jobless claims fall 12,000 to 216,000

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Continuing claims drop 26,000 to 1.862 million

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Consumer spending increases 0.5% in September

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Core PCE price index rises 0.3%; up 2.7% year-on-year

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Labor costs post smallest gain in over three years in Q3

By Lucia Mutikani

WASHINGTON, Oct 31 (Reuters) - The number of Americans

filing new applications for unemployment benefits fell to a

five-month low last week and consumer spending increased more

than expected in September, showcasing the economy's strength

heading into the final stretch of 2024 and just days before next

Tuesday's presidential election.

Though prices pushed higher last month, inflation is firmly

on a downward trend, with other data on Thursday showing labor

costs posting their smallest gain in more than three years in

the third quarter. The data likely keeps the Federal Reserve on

track to cut interest rates next week and possibly in December.

Americans head to the polls to choose Democratic Vice

President Kamala Harris or Republican former President Donald

Trump as the country's next president. Polls show the race is a

toss-up. Despite the economy's strong performance, high food and

housing costs have caused angst among households.

"Consumers may say they're downbeat, but spending looks to

be unfazed by a moderating labor market and still-high prices,"

said Shannon Grein, an economist at Wells Fargo.

Initial claims for state unemployment benefits dropped

12,000 to a seasonally adjusted 216,000 for the week ended Oct.

26, the lowest level since May, the Labor Department said.

The third straight weekly decline likely reflected the

fading distortions from Hurricanes Helene and Milton, which

boosted claims in early October and kept them elevated through

the middle of the month. Applications were also lifted by a

strike at Boeing ( BA ), which has forced the planemaker to

implement rolling furloughs, and hurt its suppliers.

Economists polled by Reuters had forecast 230,000 claims for

the latest week. Unadjusted claims fell 3,349 to 200,132 last

week, with filings declining 2,969 in North Carolina and

dropping 2,692 in Florida. Applications also fell in California,

helping to more than offset a 2,061 jump in claims in New York

and a 1,854 increase in Michigan.

The number of people receiving benefits after an initial

week of aid, a proxy for hiring, decreased 26,000 to a

seasonally adjusted 1.862 million during the week ending Oct.

19, the claims report showed.

Through the hurricanes and strike volatility, the labor

market picture has probably not changed much. A report from

global outplacement firm Challenger, Gray & Christmas on

Thursday showed planned layoffs by U.S.-based employers dropped

23.7% to 55,597 in October.

The storms and labor strife, however, likely restrained job

growth in October. The Labor Department reported last week that

there were 41,400 workers on strike during the period that

employers were surveyed for October's employment report,

including at Boeing ( BA ) and three hotel chains.

Economists estimate that the drag on payrolls from Helene

and Milton could be as much as 70,000.

A Reuters survey showed nonfarm payrolls probably increased

by 113,000 jobs this month after rising by 254,000 in September.

The unemployment rate is forecast unchanged at 4.1%.

The Labor Department is scheduled to publish October's

employment report on Friday, the last major economic data before

the election next week. Economists expected the U.S. central

bank to brush aside the jobs report and cut rates by 25 basis

points next Thursday. The Fed last month launched its policy

easing cycle with an unusually large half-percentage-point

interest rate cut, the first reduction in borrowing costs since

2020.

Fed's policy rate is now set in the 4.75%-5.00% range,

having been hiked by 525 basis points in 2022 and 2023.

Stocks on Wall Street traded lower. The dollar was steady

against a basket of currencies. U.S. Treasury yields rose.

INFLATION STILL EASING

Labor market resilience is combining with easing inflation,

a rise in household net worth, thanks to a stock market boom and

higher house prices, to support spending and the overall

economy.

A separate report from the Commerce Department's Bureau of

Economic Analysis showed consumer spending, which accounts for

more than two-thirds of U.S. economic activity, rose 0.5% last

month after an upwardly revised 0.3% gain in August.

Economists had forecast consumer spending climbing 0.4%

after a previously reported 0.2% rise in August. When adjusted

for inflation, spending increased 0.4%, putting consumption on a

higher growth path heading into the fourth quarter.

The rise in spending was across goods and services, and was

supported by a 0.3% gain in income as wages and salaries logged

the second straight monthly increase of 0.5%. Some consumers

tapped their savings, lowering the saving rate to a still-high

4.6% from 4.8% in August.

The data was included in Wednesday's advance gross domestic

product report for the third quarter, which showed the economy

growth at a 2.8% annualized rate after expanding at a 3.0% pace

in the April-June quarter.

Though prices ticked up in September, the overall inflation

picture remains benign amid subsiding wage pressures.

The personal consumption expenditures (PCE) price index rose

0.2% after an unrevised 0.1% gain in August. Prices were driven

by services, which increased 0.3% amid higher costs for housing

and utilities as well as healthcare and transportation. Goods

prices fell 0.1%, declining for a second consecutive month.

In the 12 months through September, the PCE price index

increased 2.1% - the smallest year-on-year rise in PCE inflation

since February 2021 - after advancing 2.3% in August.

Excluding the volatile food and energy components, the PCE

price index rose 0.3% after increasing 0.2% in August. In the 12

months through September, core inflation increased 2.7% for the

third straight month. The U.S. central bank tracks the PCE price

measures for its 2% inflation target.

"We are not concerned that inflation's progress toward the

Fed's target is stalling, let alone reaccelerating," said Ryan

Sweet, chief economist at Oxford Economics.

A third report from the Labor Department's Bureau of Labor

Statistics showed the employment cost index (ECI), the broadest

measure of labor costs, rose 0.8% in the third quarter. That was

the smallest gain since the second quarter of 2021 and followed

an unrevised 0.9% increase in the second quarter.

Labor costs gained 3.9% in the 12 months through September,

the smallest rise since the third quarter of 2021, after

advancing 4.1% in the year through June.

The ECI is viewed by policymakers as one of the better

measures of labor market slack and a predictor of core inflation

because it adjusts for composition and job-quality changes.

"The further slowing of the ECI during summer is a

reassuring sign that underlying conditions remain in place for

the Fed to meet its inflation goals, despite recent firming of

consumer prices," said Jonathan Millar, an economist at

Barclays.