Consumer Prices Slip on Cheaper Gas; Jobless Claims Fall

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Consumer Price Index
Danny Johnston/AP
By Lucia Mutikani

WASHINGTON -- U.S. consumer prices recorded their biggest drop in eight months in September as the cost of gasoline fell, but a steady pick-up in the prices of other goods and services suggested inflation was poised to rise.

There was good news on the labor market, with other data Thursday showing new applications for unemployment aid fell back to a 42-year low last week. The very low level of layoffs and gradually firming underlying inflation could keep the door open to an interest rate increase from the Federal Reserve this year.

"Today's reports strengthen our view that the U.S. economy remains on the right track and should help to bolster the Fed's confidence that it is getting ever closer to meeting both of its mandates. We expect the first rate hike in December," said Harm Bandholz, chief economist at UniCredit Research in New York.

The Labor Department said its Consumer Price Index fell 0.2 percent last month after slipping 0.1 percent in August. In the 12 months through September, the CPI was unchanged for the first time in four months. It rose 0.2 percent in August.

Stripping out food and energy costs, prices rose last month. The so-called core CPI gained 0.2 percent after ticking up 0.1 percent in August. In the 12 months through September, the core CPI increased 1.9 percent, the largest gain since July 2014, after advancing 1.8 percent in August.

The Fed tracks the personal consumption expenditures price index, excluding food and energy, which is lower than the core CPI. Low inflation, which has persistently run below the U.S. central bank's 2 percent target, is a major hurdle to an interest rate hike this year.

Stocks on Wall Street rose on the data, snapping a two-day losing streak. Prices for U.S. government debt fell, while the dollar rose against a basket of currencies.

Divided Fed

Top Fed officials are divided on whether to tighten monetary policy, with governors Lael Brainard and Daniel Tarullo this week urging against raising interest rates. In contrast, Fed Chair Janet Yellen and Vice Chair Stanley Fischer have recently said they support raising rates this year.

Expectations of a lift-off in the U.S. central bank's short-term interest rate have been dealt a blow by an abrupt slowdown in job growth in the last two months and softening economic activity because of a strong dollar, lower oil prices and a weakening global economy.

The stumble in job growth, however, is at odds with the very low levels of layoffs. In a second report, the Labor Department said initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 255,000 for the week ended Oct. 10.

Claims were last at this level in July, which was the lowest since November 1973. Nonfarm payrolls growth in August and September averaged 139,000, the weakest two-month rise since January last year.

The slowdown is puzzling given job openings are at record highs. Some economists say the step-down in hiring is because employers cannot find qualified workers for the open jobs.

"Claims continue to show no sign of an uptrend, reinforcing our view that the sudden slowing in payrolls in the last two months mainly reflects volatility rather than a fundamental change in the trend," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell to the lowest level since December 1973.

The inflation report showed gasoline prices fell 9 percent, the biggest drop since January, after declining 4.1 percent in August.

Food prices increased 0.4 percent, the largest increase since May 2014, and rents increased 0.4 percent. Expensive food and accommodation could hurt consumer spending, even with cheaper gasoline.

The cost of medical care, household furnishings and personal care products increased last month. However, apparel prices fell as did the cost of new vehicles and used cars and trucks. Airline fares also declined.

While the inflation and jobless claims data allayed some of the concerns about the economy, manufacturing remains a weak spot. Separate reports showed factory activity in New York state and the mid-Atlantic region contracted further in October.

"We did not anticipate manufacturing to be a driver of growth in 2015, given the strengthening in the dollar, and turmoil in emerging markets may be adding to weakness," said John Ryding, chief economist at RDQ Economics in New York.

9 Numbers That'll Tell You How the Economy's Really Doing
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Consumer Prices Slip on Cheaper Gas; Jobless Claims Fall
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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