Jobless claims fall, inflation stays benign

WASHINGTON Thu Apr 22, 2010 4:37pm EDT

People wait in line to enter the NYCHires Job Fair in New York, February 24, 2010. REUTERS/Shannon Stapleton

People wait in line to enter the NYCHires Job Fair in New York, February 24, 2010.

Credit: Reuters/Shannon Stapleton

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless aid fell last week as the labor market gradually heals, while producer price data showed inflation is muted despite a surge in food costs last month.

A rise in sales of previously owned homes in March after three months of declines added to growing optimism that the economy is on a moderate recovery path.

Thursday's data should help persuade the Federal Reserve -- the U.S. central bank -- to renew its pledge to keep benchmark interest rates exceptionally low for an extended period at its regular two-day meeting next week, analysts said.

"Inflation is still not an issue that the Fed is concerned about and the job market is very slowly improving, which is an underpinning for moderate economic growth being sustained," said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh.

Initial claims for state unemployment benefits dropped 24,000 to a seasonally adjusted 456,000, the Labor Department said, resuming a downward trend that had been interrupted by the Easter holiday. Markets had expected 455,000 claims.

The data covered the survey period for the government's closely monitored employment report for April, which will be released on May 7.

In a second report, the department said prices paid at the farm and factory gate increased 0.7 percent, following a 0.6 percent drop in February, on strong food and gasoline costs. Markets had expected producer prices to rise 0.4 percent.

The data had little impact on U.S. financial markets, which were watching developments in Greece after European Union figures showed a bigger budget deficit than previously feared. Moody's Investors Services downgraded Greek government debt.

U.S. stocks initially fell on the Greek news, but reversed course to end higher, helped by another steady stream of strong earnings from companies.

Greece's woes lifted the U.S. dollar to a near one-year high against the euro and limited the fall in U.S. government bond prices ahead of next week's record Treasury debt issuance.

EMPLOYMENT SLOWLY RISING

While initial claims are still above levels viewed by analysts as in line with job market stability, anecdotal evidence indicates employment is slowly rising.

Last month, the economy recorded its largest jobs gain in three years, largely driven by private sector hiring as employers started to warm up to the economy's recovery.

Analysts expect the hiring trend continued in April, also supported by recruitment for the 2010 U.S. census.

"The labor market is healing and we expect a healthy gain in payrolls in April, even outside of census hiring," said Michelle Meyer, an economist at Barclays Capital in New York.

With the labor market recovery not expected to be vigorous enough to absorb the 8.2 million Americans who lost their jobs during the recession, producers will find it difficult to pass on high prices to consumers.

The Labor Department said 70 percent of the increase in wholesale prices in March was due to a 2.4 percent jump in consumer foods, the largest rise since January 1984. Gasoline prices rose 2.1 percent after a 7.4 percent fall in February.

Still, inflation pressures remain benign. Stripping out volatile food and energy costs, core producer prices gained 0.1 percent in March after rising by the same margin in February.

Government data last week showed consumer prices barely increased in March. A combination of benign inflation pressures and resource slack in the economy support the Fed's commitment to low interest rates.

EXISTING HOME SALES JUMP

In a separate report, sales of previously owned homes rose 6.8 percent to an annual rate of 5.35 million units in March as Americans rushed to take advantage of a tax credit for home buyers, the National Association of Realtors said.

Prospective buyers have to sign contracts by the end of this month and close by the end of June to be eligible for the tax break. This could see sales decline thereafter.

A housing market collapse triggered the most brutal recession in 70 years, and a recovery had stalled in recent months.

"There will undoubtedly be a temporary lull in demand after June, but if job growth continues to pick up and wage and income gains continue to accelerate, then housing demand may be well supported in the second half of this year," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

With a wave of foreclosed properties hitting the market, U.S. home prices fell 0.2 percent on a seasonally adjusted basis in February and dropped 3.4 percent in the year, a report from the Federal Housing Finance Agency showed.

(Additional reporting by Pedro da Costa in Washington and Lynn Adler in New York; Editing by Kenneth Barry and James Dalgleish)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (8)
ashimmer wrote:
The jobless claims have reduced not because the economy has improved but because the long term unemployed are being cut off benefits. How do I know? Well folks, I’m now homeless after 25 years of working and going to school. Unable to pay any bills after 25 years of being a good citizen. Jobless claims are reduced, the unemployed are being written off.

Apr 22, 2010 8:58am EDT  --  Report as abuse
Nomorekoolaid wrote:
Sorry to hear of your situation. According to the government you’re not unemployed.

Nobody believes these numbers. When someone has been unemployed for a long time, they’re taken off the unemployment roles. These numbers are meaningless. It doesn’t even take into account the underemployed.

Pure Kool Aid

Apr 22, 2010 12:45pm EDT  --  Report as abuse
Deja Vu! I feel like I see this article every few weeks- Then in a few days new data will come out and then there will be the new headline that says “XXXXX points to a longer than expected recovery due to weak results.”

Apr 22, 2010 12:49pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.