Economic signs show recovery, point to low rates

The number of U.S. workers filing new claims for jobless aid fell last week as the labor market gradually heals and producer price data showed inflation remained muted, despite a surge in food costs last month.
By: Lucia Mutikani: Reuters.com
Housing Market

In other data, sales of previously owned home rose 6.8 percent to an annual rate of 5.35 million units in March as Americans rushed to take advantage of a tax credit for home buyers, the National Association of Realtors said.

Analysts said the data on Thursday pointed to a moderate economic recovery that should see the Federal Reserve renew its pledge to keep benchmark interest rate exceptionally low for an extended period at its regular two-day meeting next week.

"Inflation is still not an issue that the Fed is concerned about and the job market is very slowly improving, which is an underpinning for moderate economic growth being sustained," said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh. "It's too soon for the Fed to move away from the extended period language."

Initial claims for state unemployment benefits dropped 24,000 to a seasonally adjusted 456,000, the Labor Department said on Thursday, resuming a downward trend that had been interrupted by the Easter holiday. That compared to market expectations for 455,000.

The data covered the survey period for the government's closely monitored employment report for April, which will be released on May 7.

While initial claims are still above levels viewed by analysts as in line with job market stability, anecdotal evidence indicates employment is slowly rising.

Last month, the economy recorded its largest jobs gain in three years, largely driven by private sector hiring as employers started to warm up to the economy's recovery - which is showing signs of gathering momentum.

Analysts expect the hiring trend continued in April, also supported by recruitment for the 2010 census.

The number of people still receiving benefits after an initial week of aid fell 40,000 to 4.65 million in the week ended April 10, the Labor Department said. However, it was less than market expectations for a fall to 4.60 million and the prior week's figure was revised up.

FOOD PRICES BOOST PPI

In a second report, the department said prices paid at the farm and factory gate increased 0.7 percent following a 0.6 percent drop in February on strong food and gasoline costs.

The Labor Department said 70 percent of the increase in wholesale prices in March was due to a 2.4 percent jump in consumer foods, the largest rise since January 1984. Gasoline prices rebounded 2.1 percent from a 7.4 percent fall in February.

Still, inflation pressures remain benign. Stripping out volatile food and energy costs, core producer prices gained 0.1 percent in March after rising by the same margin in February.

Government data last week showed consumer prices barely increased in March. A combination of benign inflation pressures and excess resource slack in the economy support the U.S. central bank commitment to low interest rates.

The Fed will hold a regular two-day policy meeting on Tuesday and Wednesday next week.

Markets had expected producer prices to rise 0.4 percent.

The data had little impact on U.S. financial markets, which were watching developments in Greece for direction.

U.S. stocks fell as new budget deficit data on Greece fanned fears about that country's ability to raise enough money to meet debt payments. U.S. government debt prices rose modestly and the dollar hit a one year high against the euro.

EXISTING HOME SALES JUMP

In a separate report, sales of previously owned home rose 6.8 percent to an annual rate of 5.35 million units in March as Americans rushed to take advantage of a tax credit for home buyers, the National Association of Realtors said.

Despite the rise, activity remained severely depressed from levels preceding the country's sharpest housing downturn in modern history. High home vacancies are constraining rentals, helping to put a lid on inflation.

"We're reinforcing the case that we're getting a gradual bottom in housing. Despite that, enthusiasm will be tempered by the prospect of more foreclosures ahead," said Jim Awad, managing director at Zephyr Management in New York.

In another report, U.S. home prices fell 0.2 percent on a seasonally adjusted basis in February and dropped 3.4 percent in the year, the Federal Housing Finance Agency said on Thursday.

The regulator's price index, calculated using purchase prices of homes financed with mortgages that have been sold to or backed by Fannie Mae (FNM.N) or Freddie Mac (FRE.N), has fallen 13.3 percent below its April 2007 peak.

(Additional reporting by Pedro da Costa in Washington and Lynn Adler in New York)