The number of Americans filing for unemployment benefits unexpectedly fell last week, pointing to a further tightening of labor market conditions.
Other data on Thursday showed a moderation in factory activity in the mid-Atlantic region in June amid a decline in new orders. Firms, however, continued to report overall increases in employment this month.
The robust labor market, which is underpinning economic growth, likely will pave the way for the Federal Reserve to raise interest rates two more times this year. The U.S. central bank last week increased borrowing costs for a second time this year and forecast two more rate hikes by the end of 2018.
"The U.S. labor market is tightening," said Maria Cosma, an economist a Moody's Analytics in West Chester, Pennsylvania. "Though unemployment benefits claims are not a perfect measure of layoffs, they highlight the strength of the labor market and suggest the unemployment rate has nowhere to go but lower."
Initial claims for state unemployment benefits decreased 3,000 to a seasonally adjusted 218,000 for the week ended June 16, the Labor Department said. Economists polled by Reuters had forecast claims rising to 220,000 in the latest week. Claims have now declined for four straight weeks.
The labor market is viewed as being near or at full employment, with the jobless rate at an 18-year low of 3.8 percent. The unemployment rate has dropped by three-tenths of a percentage point this year and is near the Fed's forecast of 3.6 percent by the end of this year.
The dollar was trading lower against a basket of currencies while prices for U.S. Treasurys rose. Stocks on Wall Street fell amid lingering concerns over the ongoing trade conflict between the United States and China.
The four-week moving average of initial claims, viewed as a better measure of labor market trends as it irons out week-to-week volatility, dropped 4,000 to 221,000 last week.
The claims data covered the survey period for the nonfarm payrolls component of June's employment report. The four-week average of claims rose 7,500 between the May and June survey weeks, suggesting some moderation in job growth this month. Nonfarm payrolls increased by 223,000 jobs in May.
Economists expect hiring to slow in the coming months as employers increasingly report labor shortages across all sectors of the economy. There were a record 6.7 million job openings in April. The number of unemployed people per vacancy slipped to 0.9 from 1.0 in March, meaning that most people looking for a job are likely to find one.
The strong labor market is providing a boost to the economy, with gross domestic product estimates for the second quarter topping a 4.5 percent annualized rate. But the growth pace could slow later this year.
A separate report from the Conference Board showed its leading economic index, a gauge of future U.S. economic activity, increased 0.2 percent in May after increasing 0.4 percent in April. The Conference Board said the index "indicates that economic activity is not likely to accelerate."
A third report from the Philadelphia Fed also appeared to hint at a growth slowdown. The Philadelphia Fed said its business conditions index fell to a reading of 19.9 in June, the lowest level since November 2016, from 34.4 in May.
Economists speculated the ebb in business conditions was the result of escalating tensions between the United States and its trade partners, including Canada, Mexico, and the European Union. The Trump administration has slapped tariffs on steel and aluminum imports to shield domestic industries from what it says is unfair competition. Washington also plans to impose duties on a range of Chinese imports next month.
"There may be some headwinds forming," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "There is a lot of chaos in Washington that is causing optimism to moderate."
The Philadelphia Fed survey's new orders sub-index tumbled to a reading of 17.9 this month from 40.6 in May. Firms also reported order backlogs were diminishing. They continued to report higher prices for both raw materials and their own manufactured goods.
A measure of factory employment in the mid-Atlantic region edged up to a reading of 30.4 this month from 30.2 in May. But manufacturers reduced hours for their employees, with the average workweek index decreasing 10 points.
Firms were less upbeat about business prospects over the next six months, with measures for new orders and employment declining. Manufacturers, however, expect to boost capital expenditures in the next six months.