U.S. labor market resilient despite sluggish economy

WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits rose slightly more than expected last week, but the underlying trend continued to point to a rapidly tightening labor market.

Despite the strength in the jobs market, the broader economy is struggling to kick into higher gear after growth braked sharply at the start of the year amid tepid consumer spending, as well as weak business investment and factory activity.

The modest rebound in growth at the start of the second quarter was underscored by other data on Thursday showing a surprise decline in home resales in April and persistent weakness in manufacturing in May.

Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 274,000 for the week ended May 16, the Labor Department said. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell to a fresh 15-year low.

"The trend in claims, solidly below the pre-recession trough, remains in line with our forecast for continued tightening in labor market slack ahead," said Derek Lindsey, an economist at BNP Paribas in New York. Economists had forecast claims rising to 271,000 last week.

The sturdy labor market keeps the Federal Reserve on track to raise interest rates later this year. Minutes of the U.S. central bank's April meeting released on Wednesday showed most policymakers saw little chance of a June rate hike.

In a separate report, the National Association of Realtors said existing home sales declined 3.3 percent to an annual rate of 5.04 million units last month.

The decline, which still left the sales pace above 5 million units, is likely to be temporary given the labor market gains. In addition, housing starts and permits for future building increased to multi-year highs April.

U.S. stocks were trading marginally higher, while the dollar slipped against a basket of currencies. U.S. Treasury debt prices rose.

WEAK MANUFACTURING

In another report, the Philadelphia Fed said its business activity index dipped to 6.7 this month from 7.5 in April.

Any reading above zero indicates expansion in the region's manufacturing. Manufacturing has been pressured by a strong dollar and deep spending cuts by energy companies whose profits have been squeezed by lower crude oil prices.

"This is consistent with our expectation that the domestic manufacturing sector will continue to face headwinds from the lagged effects of a stronger dollar and lower energy prices," said Jesse Hurwitz, an economist at Barclays in New York.

The claims data covered the period during which the government surveyed employers for the payrolls portion of May's employment report. The four-week average of claims fell 18,750 between the April and May survey period, suggesting another month of job growth above 200,000.

Outside the energy sector, which has lost thousands of jobs so far this year as oilfield companies like Schlumberger , Baker Hughes and Halliburton respond to the sharply lower oil prices, layoffs have been very minimal.

A mix of bad weather, a strong dollar, port disruptions and deep energy spending cuts weighed on the economy in the first quarter, with output barely expanding.

Nonfarm payrolls rose 223,000 in April and the unemployment rate slipped to a near seven-year low of 5.4 percent.

Thursday's claims report showed the number of people still receiving benefits after an initial week of aid fell 12,000 to 2.21 million in the week ended May 9. That was the lowest level since November 2000.

The unemployment rate among people receiving benefits fell 0.1 percentage point to 1.6 percent, the lowest since July 2000. This rate tracks the short-term unemployment rate.

"With long-term unemployment on a downward trend, we would not be surprised to see the unemployment rate fall to 5.3 percent in May," said John Ryding, chief economist at RDQ Economics in New York.

(Reporting by Lucia Mutikani; Additional reporting by Jason Lange; Editing by Andrea Ricci)

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