WRAPUP 3-Data points to soft US economy, possible Fed action

Thu Jun 14, 2012 4:23pm EDT

* Jobless claims rose for fifth time in six weeks
    * Claims data suggests no improvement in labor market
    * Plunge in gasoline pushes consumer prices lower in May
    * Softer inflation could give Fed more room to act

    By Jason Lange	
    WASHINGTON, June 14 (Reuters) - New claims for U.S. state
jobless benefits rose for the fifth time in six weeks and
consumer prices fell in May, opening the door wider for the U.S.
Federal Reserve to help an economy that shows signs of
weakening. 	
    Though the data released on Thursday showed only a small
increase in claims last week, it undermined hopes that a recent
slowdown in hiring would prove temporary.	
    "There is very little sign of life," said Hugh Johnson,
chief investment officer of Hugh Johnson Advisors in Albany, New
York. "The economy as measured by employment conditions has
slowed and there doesn't appear to be any change when you look
at the claims numbers."	
    New claims rose by 6,000 last week, the Labor Department
s aid. Cl aims have been trending higher since February, which may
have marked a turning point for the U.S. economy. Every month
since the n, e mployers have cut back on new hiring.	
    The slackening U.S. recovery and a worsening debt crisis in
Europe have increased expectations of a further easing of
monetary policy by the Fed, although economists are divided on
whether the central bank will act when it holds it meets on
Tuesday and Wednesday.	
       
 	
    	
    FALLING PRICES	
    The 0.3 percent drop in consumer prices in May was the
sharpest decline since December 2008, and it offered the Fed
more maneuvering room.	
    U.S. gasoline prices fell 6.8 percent, the most in more than
three years, the Labor Department said.	
    The reason for the decline appears to be Europe's debt
crisis, which menaces the global economy and has pushed world
oil prices lower. 	
    That amounts to something of a silver lining for the wider
economy because it gives consumers m ore money to spend on other
things. 	
    Shaky economic data has weighed on President Barack Obama's
hopes of re-election in November. Obama and his Republican
opponent, Mitt Romney, traded blows on Thursday in dueling
speeches on the economy. 	
    Fed Chairman Ben Bernanke said last week the main question
for U .S. central bankers r ight now is whether the economic
recovery will move forward swiftly enough to keep the labor
market on an improving path.	
    Recent signs have been worrisome. For example, retail sales
contracted last month despite the drop in gasoline prices. U .S.
foreclosure starts rose year-over-year in May for the first time
in more than two years.	
    "Pressure is mounting on the Fed to give the economy a shot
in the arm," said Chris Williamson, an economist at Markit. 	
    One reason some Fed policymakers have opposed more monetary
stimulus has been persistent inflation pressure o utside the
volatile food and energy category. Signs of that pressure were
still present in May, when so-called core prices climbed 0.2
percent, matching the prior month's increase.	
    That left core prices up 2.3 percent from a year earlier, 
even as the gain in overall prices slipped sharply to 1.7
percent.	
    A combination of the worsening debt crisis in Europe and
uncertainty over whether t he U.S. Congress will stave off big
tax increases and government spending cuts at year-end is
souring business and consumer confidence. 	
    On Thursday, there were signs Europe's woes were getting
worse, as Spain's 10-year bond yields hit a euro-era record of
7.0 percent. Yields above that rate have forced other struggling
euro-area nations to seek an international bailout.	
    U.S. stocks rose and prices for U.S. treasuries fell after
Reuters reported that central banks are preparing for
coordinated action to provide liquidity to the financial system
if needed after the Greek election on Sunday. 	
    A victory in Sunday's elections by parties in Greece opposed
to austerity measures attached to its second E.U. bailout would
likely send the euro zone further into crisis by pushing the
country towards the currency bloc's exit door. Policymakers
around the world are preparing to protect their currencies and
economies from any turmoil that might arise.
FILED UNDER:
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 (1)
jvkfai wrote:
Let’s assume investor incentives propelled the markets into record territory and are currently holding them artificially high… Let’s assume that the global economy is stagnant because of the outrageously high cost of living that followed the markets into record territory, plunging millions into poverty and extinguishing consumer demand… Let’s assume that 70% of the world’s workforce hasn’t received cost of living increases in thirty years…
Let’s assume that when the markets quadruple in a short period of time, the fleecing frenzy plunges the economy into a great depression…

What would be the logical solution?

Fortunately for us the markets didn’t quite quadruple (+350% 1995-07) like they did in the 1920’s (+400% 1920-29) when the high cost of living plunged the economy into the great depression! You would think our policy makers would have learned!

Jun 18, 2012 6:09pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.