February 21, 2013 / 4:31 PM / in 5 years

WRAPUP 5-U.S. jobs, factory, inflation data favor easy Fed policy

* Weekly jobless claims rise 20,000
    * Consumer prices unchanged in January for second month
    * Philadelphia Fed's business index falls for second month
    * Home resales up, supply lowest since 1999

    By Lucia Mutikani
    WASHINGTON, Feb 21 (Reuters) - A raft of U.S. economic data
on Thursday from claims for jobless aid to factory activity and
consumer prices pointed to a still tepid recovery and supported
the argument for the Federal Reserve to maintain its monetary
    The Fed is currently buying $85 billion in bonds per month
and has said it would keep up purchases until the labor market
outlook improves substantially, although officials are
increasingly divided over the wisdom of that course.
    "The economy is in a holding pattern. It's not going to
strengthen sufficiently to justify an end of the current
program," said Millan Mulraine, senior economist at TD
Securities in New York. 
    Initial claims for state unemployment benefits increased
20,000 last week to a seasonally adjusted 362,000, unwinding the
bulk of the prior week's decline, the Labor Department said.
    A second report from the department showed consumer prices
were flat for a second straight month in January as gasoline
prices fell and the cost of food held steady.
    In the 12 months through January, consumer prices rose 1.6
percent, the smallest gain since July. That suggested there was
little inflation pressure to worry the Fed.
    Concerns over tepid job growth prompted the U.S. central
bank last year to embark on its open-ended bond buying program.
    However, minutes of the Fed's Jan. 29-30 policy meeting
published on Wednesday showed some 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
financial risks of the program. 
    Those diverging views were evident on Thursday, with two Fed
officials signaling support for scaling back the program, while
another outlined the case for maintaining bond purchases until
well into the second half of the year. 

    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. 
    Another report from financial data firm Markit that tries to
gauge overall national factory activity showed manufacturing
growth slowed in February but remained near a nine-month peak.
    "We believe manufacturing activity will continue to expand
early in 2013," said Daniel Silver, an economist at JPMorgan in
New York.
    The claims and factory reports, as well as weak data from
Europe weighed on U.S. stocks. The Standard & Poor's 500 index
 recorded its worst two-day loss since November.
    Prices for U.S. government debt rose and the
dollar touched a 5-1/2-month high against a basket of currencies
    Growth in the U.S. economy braked sharply in the fourth
quarter, but it expanded at a 2.2 percent clip for the full
year. Output 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
government's closely watched monthly tally of nonfarm jobs.
Claims were up 27,000 between the January and February survey
    However, the increase probably does not suggest any material
change in the pace of job growth given that claims have been
very volatile since January because of difficulties smoothing
the data for seasonal fluctuations.
    Despite the weak factory and jobs data, there is reason for
optimism about the economy. The housing market recovery is
gaining momentum.
    A 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 earlier. 
    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 that
reflected outsized increases in apparel and education costs. 
    "January is a tough month because you get a lot of price
hikes at the start of the new year and the seasonals have a hard
time sort of adjusting," said Omair Sharif, an economist at RBS
in Stamford, Connecticut.
    "I don't expect the core CPI to maintain that pace of
increase in the near term."
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