US weekly jobless claims point to stable labor market; Iran war poses a risk

* Weekly jobless claims fall 1,000 to 213,000

* Continuing claims decrease 21,000 to 1.850 million

* Single-family housing starts drop 2.8% in January; building permits fall 0.9%

By Lucia Mutikani

WASHINGTON, March 12 (Reuters) - The number of Americans filing new applications for unemployment benefits fell last week, suggesting labor market conditions remained stable even after the economy shed jobs in February, but the U.S.-Israeli war against Iran poses a downside risk.

For now, the low level of layoffs evident in the report from the Labor Department on Thursday should give the Federal Reserve room to keep interest rates unchanged for some time as the conflict in the Middle East drives up oil prices and threatens to fan domestic inflation, economists said. The war has raised gasoline prices by at least 20% since it started.

"The low and steady level of initial jobless claims suggests the big drop in nonfarm payrolls in February was a blip, not the start of a trend," said Michael Pearce, chief U.S. economist at Oxford Economics. "We think the evidence is consistent with labor market conditions stabilizing before the fallout of the Iran war hits the economy."

Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 213,000 for the week ended March 7. Economists polled by Reuters had forecast 215,000 claims for the latest week. Claims have been tucked in a 199,000-232,000 range this year amid low layoffs. The government reported last week that nonfarm payrolls decreased by 92,000 jobs in February, the sixth decline since January 2025 and the second largest.

The drop was blamed on harsh winter weather, a strike by healthcare workers and payback following outsized payroll gains in January, as well as a general hesitancy by businesses to increase headcount because of uncertainty from import tariffs and integration of artificial intelligence into some work roles. The U.S. Supreme Court struck down President Donald Trump's sweeping tariffs, which he pursued under a law meant for use in national emergencies. But Trump responded to the ruling by imposing a 10% global tariff, which he said would rise to 15%. The Trump administration said on Wednesday it was launching two trade investigations into excess industrial capacity in 16 major trading partners and into forced labor.

Soaring gasoline prices and stock market volatility would weigh on consumer spending and undercut demand for workers, economists warned. The U.S. central bank was expected to keep its benchmark overnight interest rate unchanged in the 3.50%-3.75% range next Wednesday. Economists see the window for rate cuts closing, with financial markets anticipating a single reduction this year in September.

U.S. stocks fell as oil prices surged to nearly $100 a barrel. The dollar advanced against a basket of currencies. U.S. Treasury yields rose.

SINGLE-FAMILY HOUSING STARTS FALL

The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, dropped 21,000 to a seasonally adjusted 1.850 million during the week ended February 28, the claims report showed. The so-called continuing claims could be declining as some people exhaust their eligibility, limited to 26 weeks in most states.

Continuing claims also do not include recent college graduates, who are experiencing long spells of unemployment, because they have limited or no work history, disqualifying them from claiming jobless benefits. The unemployment rate increased to 4.4% in February from 4.3% in January.

News on the housing market was downbeat. Single-family housing starts, which account for the bulk of homebuilding, dropped 2.8% to a seasonally adjusted annual rate of 935,000 units in January, the Commerce Department's Census Bureau said in another report. Data for December was revised lower to show starts rebounding to a rate of 962,000 units instead of the previously estimated 981,000-unit rate.

The report was delayed by last year's shutdown of the federal government. January's decline in homebuilding likely reflected harsh winter weather as single-family housing starts tumbled 33.3% in the Northeast and fell 4.6% in the densely populated South. They were among the areas slammed by heavy snow and frigid temperatures in January. Single-family starts dropped 6.5% year-on-year in January.

Homebuilding has been hampered by tariffs on imported goods, including lumber and vanity cabinets, worker shortages amid an immigration crackdown and higher mortgage rates.

Though mortgage rates have declined this year, stimulating home sales, further decreases are unlikely because of the rising Treasury yields. Mortgage rates track the benchmark 10-year Treasury yield.

Homebuilder sentiment has remained depressed, suggesting that new single-family home construction is unlikely to significantly improve in the near term. Starts for housing projects with five units or more, a very volatile segment, surged 29.1% to a rate of 524,000 units in January. Overall housing starts increased 7.2% to a rate of 1.487 million units. They advanced 9.5% year-on-year in January.

Permits for the future construction of single-family housing units fell 0.9% to a rate of 873,000 units in January. Permits decreased 11.6% from a year ago.

Residential investment, which includes homebuilding, has contracted for four straight quarters.

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(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci )