U.S. Labor Market Firming, but Inflation Remains Benign

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David Goldman/AP
By Lucia Mutikani

WASHINGTON -- The number of Americans filing new claims for jobless benefits fell sharply last week and a gauge of factory activity hit an eight-month high in early November, hinting at some strength in the economy.

Other data Thursday showed wholesale prices fell for a second straight month in October, the latest sign of a lack of inflation pressure which helps give the Federal Reserve leeway as it considers when to scale back its bond-buying stimulus.

"Claims and manufacturing activity remain supportive for continued moderate economic growth in the fourth quarter," said Sam Bullard, a senior economist at Wells Fargo Securities (WFC) in Charlotte, N.C.

Initial claims for state unemployment benefits fell 21,000 to a seasonally adjusted 323,000, the Labor Department said. Economists had forecast a drop to just 335,000, and some cautioned that a public holiday last Monday could have contributed to some of the large decline. The department, however, said there were no special factors influencing the data, which covered the survey period for the government's report on employment in November.

A four-week moving average meant to iron out week-to-week volatility fell 6,750 to 338,500.

"There is no evidence of a pickup in layoffs and the latest report on claims should be seen as a neutral to slightly positive reading on payroll growth," said John Ryding, chief economist at RDQ Economics in New York.

Factory Activity Up, Inflation Muted

Separately, a survey of factory purchasing managers showed activity picking up. Financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers Index rose to an eight-month high of 54.3 from 51.8 in October.

Respondents linked the rebound from a one-year low touched last month partly to the end of a partial government shutdown and a rise in demand from domestic and overseas customers.

But the optimism over manufacturing was tempered somewhat by a regional factory survey showing a sharp slowdown in activity in the mid-Atlantic region in November. %VIRTUAL-article-sponsoredlinks%Some economists said this was likely a delayed reaction to last month's 16-day government shutdown.

"The manufacturing data suggests there is still some momentum," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York. "I think what you still need to see now is follow-through into job gains."

The data helped lift stocks on Wall Street, while the dollar climbed to a 4½ month high against the yen and U.S. Treasury debt prices rose.

The jobless claims and Markit factory data added to recent reports on nonfarm payrolls and retail sales that have suggested the economy is gaining momentum. Despite the improving growth picture, inflation remains virtually absent.

The Labor Department said its producer price index slipped 0.2 percent last month as gasoline prices tumbled, the largest decline since April.

Excluding volatile food and energy costs, producer prices rose 0.2 percent, boosted by the introduction of new motor vehicle models. Excluding cars and trucks, the core PPI was up only 0.1 percent.

During the last 12 months, overall producer prices have risen just 0.3 percent, with core prices up 1.4 percent. The data follows a report on Wednesday that showed consumer price inflation easing to a four-year low of 1 percent.

"With Europe still in a funk, and China struggling with recovery from a slowdown, there is no spark to get inflation rolling anytime soon," said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Mass.

9 Numbers That'll Tell You How the Economy's Really Doing
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U.S. Labor Market Firming, but Inflation Remains Benign
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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