The number of Americans filing new claims for jobless benefits fell to a near six-year low last week and consumer prices rose broadly in July, which could draw the Federal Reserve closer to trimming its massive bond buying program.
The government reports on Thursday painted a slightly upbeat picture of the labor market and hinted at pockets of pricing power in the sluggish economy.
Shares on Wall Street fell sharply and yields on U.S. Treasuries jumped to a two-year high on the data, which was viewed as increasing the chances of the Fed tapering its purchases in September.
Other reports on Thursday showed some cooling in manufacturing activity, but economists remained upbeat on the economy’s prospects in the second half of the year, with a strengthening housing market recovery seen lending support.
“The data continues to improve and impress the marketplace and I think the data will continue in this direction. Then the question becomes not whether they are tapering in September, but how much,” said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Initial claims for state unemployment benefits dropped 15,000 to a seasonally adjusted 320,000, the lowest level since October 2007, the Labor Department said. Economists had expected first-time applications to come in at 335,000 last week.
The four-week moving average for new claims, which irons out week-to-week volatility, fell to its lowest level since November 2007, offering hope of an improvement in labor market conditions after hiring slowed a bit in July.
Carl Riccadonna, a senior economist at Deutsche Bank Securities in New York, said both new claims and the four-week average at pre-recession levels were consistent with a pick-up in the pace of hiring, if not in August, then some time in the next couple Of months.
“The critical component is going to be the August jobs report. If that come in at least where it was in July, then this is going to keep the Fed on track to initiate tapering at the September (policy) meeting,” said Riccadonna.
Employers added 162,000 jobs to their payrolls last month, with the unemployment rate falling 0.2 percentage point to 7.4 percent.
The U.S. central bank has said it plans to start trimming the $85 billion in bonds it is purchasing each month to keep borrowing costs low later this year.
Most economists anticipate the Fed will make an announcement after its policy meeting in September on the future of the bond purchasing program.
BROAD GAINS IN PRICES
In another report, the Labor Department said its Consumer Price Index rose 0.2 percent, in line with economists’ expectations, as the cost of goods and services ranging from tobacco to apparel and food increased. The CPI had increased 0.5 percent in June.
In the 12 months through July, the CPI advanced 2.0 percent, the largest increase since February, after increasing 1.8 percent in June.
The push in inflation to the Fed’s 2 percent target suggested the downward drift in prices seen early in the year was over and could comfort some central bank officials who have warned on the potential dangers of inflation running too low.
Stripping out energy and food, consumer prices rose 0.2 percent for a third straight month. That took the increase over the past 12 months to 1.7 percent after core CPI gained 1.6 percent in June.
The uptick in prices fits in with Fed Chairman Ben Bernanke’s views that the low inflation was temporary.
In the manufacturing sector, output slipped 0.1 percent last month, held down by a 1.7 percent fall in the production of motor vehicles and machinery, the Fed said. That, together with a drop in utilities production, left industrial output unchanged.
Separately, the New York Federal Reserve said its “Empire State” general business conditions index fell to 8.24 in August from 9.46 in July. A reading above zero indicates expansion.
However, details of the report were fairly encouraging, with strong gains in labor market gauges. The inventory drawdown continued, which bodes well for future production.
The Philadelphia Federal Reserve, meanwhile, said its business activity index fell to 9.3 in August from 19.8 in July, amid a slowdown in new orders growth and factory jobs.
Economists generally do not put too much weight on this survey when trying to get a read of national factory activity.
REUTERS
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