US labor market stable despite war, but inflation pressures building up

* Initial jobless claims increase 6,000 to 214,000

* Labor market appears stable during survey week for April's nonfarm payrolls

* Continuing claims rise by 12,000 to 1.821 million

By Lucia Mutikani

WASHINGTON, April 23 (Reuters) - The number of Americans filing claims for unemployment benefits edged up last week, pointing to continued labor market stability in April, though economic uncertainty and higher prices stemming from the U.S.-Israeli war with Iran pose downside risks. The absence of widespread layoffs suggested by the Labor Department's report on Thursday supports financial market expectations that the Federal Reserve will probably not cut interest rates this year as the nearly two-month conflict fans inflation and strains the global economy.

"The labor market has become more vulnerable since the start of the war, but the claims data over the last two months show no evidence of cracks," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "However, it's always been our expectation that the spike in oil prices would take some time to become apparent in the labor market data." Initial claims for state unemployment benefits rose by 6,000 to a seasonally adjusted 214,000 for the week ended April 18. Economists polled by Reuters had forecast 210,000 claims for the latest week. Claims are at about the midpoint of their 201,000-230,000 range for this year, but could break higher in May and June, as has happened in recent years.

"Given residual seasonality in this series, readings above 220,000 could become common in May," said Abiel Reinhart, an economist at JPMorgan.

The four-week moving average of claims, which irons out week-to-week volatility, rose by only 750 to 210,750. The war has disrupted shipping in the Strait of Hormuz, boosting the price of oil and other commodities, including fertilizers, petrochemicals and aluminum.

Tehran effectively ?closed the strait after the start of the war ?on February 28. Economists worry a prolonged conflict could undermine an already fragile labor market.

President Donald Trump's sweeping import tariffs and immigration crackdown were blamed for the labor market's stumbles last year. Trump on Tuesday indefinitely extended the ceasefire with Iran, though a U.S. Navy blockade of Iranian ports remained in effect.

Financial markets expect the U.S. central bank to keep its benchmark overnight interest rate in the 3.50%-3.75% range through the end of this year, though some economists still believe a reduction in borrowing costs is possible, especially if the labor market deteriorates as they anticipate.

Those expectations were reinforced by a survey from S&P Global on Thursday showing a measure of prices charged by businesses for their goods and services jumped in April to the highest level in nearly four years.

The increase mostly reflected delays getting supplies to factories, with delivery times at the longest since August 2022.

The survey's measure of prices paid by businesses for inputs increased to an 11-month high.

While S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased this month after almost stagnating in March, the improvement was largely due to what it said was "stock building in the face of concerns over supply availability and price hikes."

This month's increase in the price measures suggested an acceleration in inflation was coming. Monthly consumer prices increased by the most in nearly four years in March.

"The war has raised global energy prices as well as uncertainty around the future price path," said Michael Gapen, chief U.S. economist at Morgan Stanley. "The S&P output prices index has the highest correlation with core goods inflation ... it suggests pricing pressures continued from the prior month."

Higher fuel costs are already hurting margins for some businesses, with American Airlines (AAL) on Thursday cutting its 2026 profit forecast.

Stocks on Wall Street were mixed. The dollar was flat against a basket of currencies. Yields on shorter-dated U.S. Treasuries drifted higher.

LOW-HIRE, LOW-FIRE LABOR MARKET

The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of April's employment report.

The four-week average of claims was unchanged between the March and April survey periods. Payrolls increased by 178,000 jobs in March after declining by 133,000 in February. Payrolls have dropped in six of the last 15 months.

The labor market has remained anchored by low layoffs, even as employers show little appetite for expanding headcount. Data next week on the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, will shed more light on the state of the labor market this month.

The so-called continuing claims increased by 12,000 to a seasonally adjusted 1.821 million during the week ended April 11, the claims report showed.

While continuing claims have retreated from last year's highs, the decline could partly be due to workers exhausting benefits, which are capped at 26 weeks in most states. The data also excludes some unemployed young people with little or no work history, a group that is facing difficulties finding work.

"The data continue to show a stable labor market and will provide comfort to Fed officials that downside risks to the employment side of the mandate are not growing," said Gisela Young, an economist at Citigroup.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)