Jobless claims at two-month low

WASHINGTON Thu Sep 16, 2010 5:21pm EDT

A woman holds her fist up in reaction to a speaker at a rally for unemployed people on the steps of Federal Hall in New York September 1, 2010. REUTERS/Lucas Jackson

A woman holds her fist up in reaction to a speaker at a rally for unemployed people on the steps of Federal Hall in New York September 1, 2010.

Credit: Reuters/Lucas Jackson

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WASHINGTON (Reuters) - New claims for jobless benefits hit a two-month low last week, hinting at some stability in the labor market, while the contraction in factory activity in the Mid-Atlantic region slowed in September.

The reports on Thursday further reduced the odds of a double-dip recession and suggested less of a need for the Federal Reserve to launch a fresh round of asset purchases to aid the economic recovery.

"The economy is growing at a very moderate pace, the strong elements of the upturn are unwinding, but we are not going into a new downturn," said Steven Wieting, an economist at Citigroup in New York.

Initial claims for state unemployment benefits slipped 3,000 to 450,000, the lowest since early July, the Labor Department said. Financial markets had expected a rise to 460,000.

Separately, the Philadelphia Federal Reserve Bank said its business activity index covering the mid-Atlantic moved to minus 0.7 in September from minus 7.7 in August. Markets had expected a reading of 2.0.

Any reading below zero indicates falling factory activity. The Philadelphia Fed report follows a report on Wednesday showing manufacturing growth in New York State slowed in September.

U.S. stocks ended little changed as the manufacturing report took away some of the optimism generated by the weekly jobless claims data.

Stock market players also took to the sidelines as FedEx Corp , often seen as a proxy for the U.S. economy, forecast profit for the current quarter below Wall Street's expectations and warned of a slower economic recovery.

U.S. Treasury debt prices fell and the dollar was little changed against the yen.

Although details of the Philadelphia Fed's report were grim, analysts cautioned the survey had consistently underperformed relative to the national manufacturing and other regional surveys.

"It seems the weakness may be regionally concentrated and not representative of national trends," said Nicholas Tenev, an economist at Barclays Capital in New York.

RECOVERY TOO SLUGGISH TO CUT UNEMPLOYMENT

Manufacturing has led the economy's recovery from its worst downturn since the Great Depression as businesses sought to rebuild inventories from record low levels. But growth has been too slow to reduce a 9.6 percent unemployment rate.

Frustration over a lack of jobs is eroding President Barack Obama's popularity among Americans and could see the Democratic Party severely punished in November 2 congressional elections.

Many analysts predict Republicans could take control of the House of Representatives from Democrats.

But there are tentative signs of improvement in the jobs market. Claims for jobless benefits have fallen for two straight weeks, pulling them further away from the nine-month high of 504,000 touched in mid-August.

Claims are now in the upper end of a 400,000-450,000 range that analysts associate with stable job growth.

The Fed is closely watching the jobs market and the drop in claims eases pressure on it to launch a fresh round of government debt purchase at a meeting on Tuesday. Many analysts, however, continue to expect the central bank to ease monetary policy further in coming months.

The argument for the Fed to stay pat next week was also bolstered by a 0.4 percent increase in the producer price index in August, which calmed fears of deflation -- a broad-based decline in consumer prices.

"The data we have in hand don't suggest a quantitative easing restart is required. The downside economy and deflation risks look decidedly less so, for now," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Prices paid by producers at the farm and factory gate were pushed up by the first increase in energy costs since March. Markets had expected the PPI to rise 0.3 percent after July's 0.2 percent gain.

Food prices, which rose in July, fell in August.

Stripping out volatile food and energy costs, core producer prices edged up 0.1 percent, matching market expectations.

This "core" index was held back by a fall in passenger car prices, which offset an increase in the cost of light motor trucks. In the 12 months to August, the core index has risen 1.3 percent, a bit of a slowdown from the 1.5 percent registered through July.

(Additional reporting by Burton Frierson in New York)

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