The sharp drop in housing construction comes amid other signs U.S. growth is slowing. Retail spending dropped in May for the first time this year; consumer sentiment has soured under the weight of inflation, and measures of business activity are starting to show a slowing in services and manufacturing industries.
A key tracker of U.S. growth by the Federal Reserve Bank of Atlanta on Wednesday showed the economy is teetering on the edge of a contraction in the second quarter and some economists think the U.S. could already be in a recession, despite a hot labor market.
The Federal Reserve on Wednesday approved the largest interest-rate increase since 1994 as it attempts to cool the economy and fight high inflation an effort that also could increase unemployment.
“The economy has a decent amount of momentum right now, but you can already see some cracks,” said Joshua Shapiro, chief U.S. economist at forecasting firm Maria Fiorini Ramirez Inc. “It’s going to be a tug of war between how fast the economy slows down and this ongoing need to hire people.”
Mr. Shapiro said he expects consumer demand to remain strong throughout the summer despite high inflation, which would sustain high demand for labor.
A smaller pool of available workers compared with the size of the labor force before the Covid-19 pandemic remains an issue for the labor market. Mr. Shapiro added.
New applications for unemployment benefits held nearly steady last week just above historic lows as employers continued to avoid layoffs in a still-tight labor market.
Initial jobless claims, a proxy for layoffs, decreased by 3,000 to 229,000 last week from the previous week’s revised level of 232,000, the Labor Department said Thursday. The four-week average of new claims, which smooths volatility in the weekly figures, also rose slightly by 2,750 to 218,500 last week, nearly matching the pre-pandemic average from 2019.