CORRECTED-WRAPUP 2-U.S. jobs, factory, inflation data favor easy Fed policy

Thu Feb 21, 2013 11:20am EST

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(Corrects to "food costs were unchanged" from "changed" in
paragraph 5)
    * U.S. jobless claims rise 20,000 last week
    * Consumer prices unchanged for second month in January
    * Philadelphia Fed's business index falls for second month
    * Markit U.S. PMI factory index growth slows in Feb
    * U.S. existing home sales rose in Jan

    By Lucia Mutikani
    WASHINGTON, Feb 21 (Reuters) - More Americans filed new
claims for jobless aid last week, factory activity slowed in
February and consumer prices were flat in January, supporting
the argument for the Federal Reserve to maintain its very
accommodative monetary policy stance. 
    The reports come after signs of divisions at the Fed over
its bond buying program aimed at stimulating the sluggish
economic recovery.
    "If the Fed is looking for evidence to keep their foot to
the floor on policy, they are still getting it," said Jim Baird,
chief investment strategist at Plante Moran Financial Advisors
in Kalamazoo, Michigan.
    Initial claims for state unemployment benefits increased
20,000 to a seasonally adjusted 362,000, unwinding the bulk of
the prior week's decline, the Labor Department said. 
 
    It said in a second report that consumer prices were flat
for a second consecutive month in January as gasoline prices
fell and food costs were unchanged after several months of
gains.
    In the 12 months through January, consumer prices rose 1.6
percent, the smallest gain since July. They had advanced 1.7
percent in December. 
    Concerns over tepid job growth prompted the U.S. central
bank last year to embark on an open-ended bond buying program.
    It said it would keep up the program, which it hopes will
push down borrowing costs, until it saw a substantial
improvement in the outlook for the labor market. 
    The Fed also has committed to hold interest rates near zero
until unemployment reaches 6.5 percent, provided inflation does
not threaten to push over 2.5 percent.
    However, minutes of the Jan. 29-30 policy meeting published
on Wednesday showed some Fed policymakers feel the central bank
may have to slow or stop the asset purchases before it sees an
acceleration in job growth because of concerns over the costs of
the program. 

 
    
    MANUFACTURING SLOWING
    News on the manufacturing sector, which has supported the
economy's recovery from the 2007-09 recession was downbeat.
    The Philadelphia Fed's business activity index dropped to
minus 12.5 in February, the lowest level since June. The index,
which measures factory activity in the mid-Atlantic region, had
fallen to minus 5.8 in January. 
    A reading below zero indicates contraction in the region's
manufacturing sector. The survey covers factories in eastern
Pennsylvania, southern New Jersey and Delaware.
    The pace of U.S. manufacturing growth slowed in February but
remained near a nine-month peak thanks to strong domestic
demand, an industry survey showed on Thursday. 
   Financial data firm Markit said its "flash," or preliminary
U.S. Manufacturing Purchasing Managers Index fell to 55.2 this
month from 55.8, which had been the best showing since April,
2012. A reading above 50 indicates expansion. 
   The overall U.S. economy shrank 0.1 percent in the fourth
quarter but grew at a 2.2 percent clip for the full year. 
    Stocks on Wall Street fell on Thursday morning, while U.S.
Treasury debt prices rose. The U.S. dollar advanced against a
basket of currencies after weak economic data was reported in
Europe also.
    The economy is being hampered by lackluster demand as
employment struggles to gain traction.
    Job growth has been far less than the at least 250,000 per
month over a sustained period that economists say is needed to
significantly reduce the ranks of unemployed. The unemployment
rate rose 0.1 percentage point to 7.9 percent in January.
    Last week's claims data covered the survey period for the
February nonfarm payrolls report. Claims were up 27,000 between
the January and February survey periods. 
    However this probably does not suggest any material change
in the pace of job growth given that claims been very volatile
since January because of difficulties smoothing the data for
seasonal fluctuations.
    Still, there is reason for optimism about economy. The
housing market recovery is gaining momentum.
    A fifth report from the National Association of Realtors
showed existing home sales rose 0.4 percent last month, pushing
the supply of homes on the market to a 13-year low. The median
home price rose 12.3 percent from a year-ago. 
    Rising home values should help to support consumer spending.
    Although consumer prices excluding food and energy rose 0.3
percent - the largest gain since May 2011 - most of the gain
came from apparel. Economists did not believe this was the start
of a new trend. 
    "The underlying inflation backdrop remains very supportive
to the Fed's accommodative policy stance," said Millan Mulraine,
a senior economist at TD Securities in New York. 
    

 (Additional reporting by Jason Lange in Washington and Steven C
Johnson in New York; Editing by Andrea Ricci)
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