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NEW YORK: US stock indexes fell on Thursday after data pointing to a tight labor market sparked worries that the Federal Reserve will continue with its aggressive rate-hiking cycle that could potentially tip the economy into a recession.

The Labor Department’s report showed a surprise fall in US weekly jobless claims, highlighting labor market resilience in a higher interest rate environment.

The report did not change expectations that the Fed will further scale back the size of its interest rate increases next month, hopes of which were sparked by a slump in retail sales in December and a retreat in inflation in the previous session.

A separate survey of goods producers showed on Thursday manufacturing activity in the mid-Atlantic region softened again in January, while data from the Commerce Department confirmed that the downturn in the housing market persisted. “One of the pieces of data that continues to be a conundrum for the Fed is the tight labor market,” said Art Hogan, chief market strategist at B. Riley in New York.

“There’s virtually no signs of any weakness in the labor market and that’s one of the things the Fed’s been leaning against to keep rates higher for longer.” Comments from Fed officials continue to highlight the disparity between the central bank’s estimate of its terminal rate and market expectations.

Boston Fed President Susan Collins joined a chorus of policymakers to back the case for interest rates to rise beyond 5%.

Markets, on the other hand, expect the terminal rate at 4.89% by June and have priced in a 25-basis point rate hike from the US central bank in February..

The S&P 500 and the Dow Jones Industrial Average are now headed for their third straight day of declines.

The challenging economic environment has dealt a blow to corporate America, with companies such as Microsoft Corp and Amazon.com Inc announcing plans to cut thousands of jobs.

Shares of both the companies fell around 2%, and were among the top drags to the benchmark S&P 500 and Nasdaq indexes.

Industrial and consumer discretionary stocks were among the leading decliners on the S&P 500, down 1.5% and 1.7%, respectively.

Procter & Gamble Co fell 0.8% after warning of commodity costs pressuring profits, despite raising its full-year sales forecast.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

At 12:21 p.m. ET the Dow Jones Industrial Average was down 224.90 points, or 0.68%, at 33,072.06, the S&P 500 was down 29.38 points, or 0.75%, at 3,899.48 and the Nasdaq Composite was down 109.91 points, or 1.00%, at 10,847.10.

Netflix Inc is expected to report its slowest quarterly revenue growth later on Thursday. The company’s shares fell 1.6%.

Declining issues outnumbered advancers for a 2.09-to-1 ratio on the NYSE and a 2.10-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and two new lows, while the Nasdaq recorded 28 new highs and 27 new lows.

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