Jobless claims hit seven-year low, inflation ticks up
New applications for U.S. unemployment benefits hit a seven-year low last week while consumer prices recorded their largest increase in 10 months in April, pointing to a firming economy.
The outlook was further brightened by other data on Thursday showing factory activity in New York state expanding at its quickest pace in nearly four years in May, although overall U.S. industrial output slumped in April.
"It conveys the message of solid economic activity," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York, speaking before the industrial production data was released.
Initial claims for state unemployment benefits declined 24,000 to a seasonally adjusted 297,000 last week, the Labor Department said. It was the lowest reading since May 2007.
In a second report, the department said the Consumer Price Index increased 0.3 percent last month as food prices rose for a fourth consecutive month and the cost of gasoline surged.
It was the biggest rise since June last year.
The combination of a strengthening jobs market and an uptick in inflation pressures should comfort the Federal Reserve as it scales back its monetary stimulus. However, it did little to alter expectations that the U.S. central bank will wait until at least the middle of next year before raising overnight interest rates from near zero.
The data failed to lift the spirits of U.S. stock investors, who focused on unexpectedly weaker earnings from Wal-Mart Stores Inc.. But it lifted the dollar and pushed prices for U.S. government debt down.
In the 12 months through April, consumer prices rose 2.0 percent after gaining 1.5 percent in March. The increase was the
biggest since July last year and in part reflected prices coming off last year's low base when energy costs decreased.
Stripping out food and energy prices, the so-called core CPI rose 0.2 percent after advancing by the same margin in March. In the 12 months through April, the core CPI increased 1.8 percent, the biggest gain since August last year.
The Fed targets 2 percent inflation, but it tracks an index that is running even lower than the CPI. Policymakers have worried that inflation is running too low, but the steady increase recently should ease those concerns.
As for initial jobless claims, they have been volatile in recent weeks because of difficulties adjusting the data around the Easter and Passover holidays and school spring breaks.
The four-week moving average for new claims, which irons out week-to-week volatility, fell 2,000 to 323,250.
The labor market is strengthening after wobbling in December and January because of an icy-cold winter, and economists expect a quickened pace of hiring to boost economic growth.
In a separate report, the Fed said output at the nation's mines, factories and utilities fell 0.6 percent in April after an upwardly revised 0.9 percent gain in March.
It was the biggest drop since August 2012.
The decline reflected a 0.4 percent decrease in factory production, which followed two healthy monthly gains, and a big 5.3 percent decline in utilities output that the Fed pinned on demand for heating returning toward normal levels.
Better times may be ahead, however. A gauge of factory activity in New York state compiled by the New York Federal Reserve Bank jumped to 19.01 this month, the strongest reading since June 2010, as new orders surged. It was at 1.29 in April.