US labor market tightening; inflation pressures moderate

U.S. EconomyReuters

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WASHINGTON, April 11 (Reuters) - The number of Americans filing applications for unemployment benefits dropped to a 49-1/2-year low last week, pointing to sustained labor market strength that could temper expectations of a sharp slowdown in economic growth.

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Other data on Thursday showed producer prices increased by the most in five months in March amid a surge in the cost of gasoline. But underlying producer prices remained soft, the latest indication of tame inflation pressures that strengthen the Federal Reserve's decision to suspend further interest rate increases this year despite tight labor market conditions.

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Initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 196,000 for the week ended April 6, the lowest level since early October 1969, the Labor Department said. Claims have now declined for four straight weeks.

Economists polled by Reuters had forecast claims would rise to 211,000 in the latest week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 7,000 to 207,000 last week, the lowest level since early December 1969.

The labor market is the main pillar of support for the economy, which appears to have lost momentum in the first quarter as the stimulus from a $1.5 trillion tax cut package fades and a trade war between China and the United States and softening global demand hurt exports.

Nonfarm payrolls increased by 196,000 jobs in March, well above the roughly 100,000 needed per month to keep up with growth in the working-age population. The unemployment rate is at 3.8 percent, close to the 3.7 percent Federal Reserve officials project it will be by the end of the year.

U.S. stock index futures pared gains slightly after the data while Treasury yields rose. The U.S. dollar gained against a basket of currencies.

PRODUCER PRICES RISE

In a second report on Thursday, the Labor Department said its producer price index for final demand rose 0.6 percent in March, the largest increase since last October. The PPI edged up 0.1 percent in February.

In the 12 months through March, the PPI rose 2.2 percent after advancing 1.9 percent in the 12 months through February. Economists polled by Reuters had forecast the PPI would climb 0.3 percent in March and increase 1.9 percent on a year-on-year basis.

A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month after ticking up 0.1 percent in February. The so-called core PPI increased 2.0 percent in the 12 months through March. That was the smallest annual increase since August 2017 and followed a 2.3 percent rise in February.

Data on Wednesday showed consumer prices rose by the most in 14 months in March, driven by more expensive gasoline. But core inflation remained muted amid a plunge in the cost of apparel.

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Slowing domestic and global growth are keeping inflation contained. Wage inflation has also been moderate despite a tight labor market.

Minutes of the Fed's March 19-20 policy meeting published on Wednesday described inflation as "muted," though officials expected it to rise to or near the U.S. central bank's 2 percent target. The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index, is currently at 1.8 percent.

The minutes showed some Fed officials believed the benign price pressures could be the result of low inflation expectations and also an indication that there was still slack in the labor market despite the very low unemployment rate.

Last month, wholesale energy prices jumped 5.6 percent, with gasoline prices shooting up 16.0 percent, the most since August 2009. Energy prices rose 1.8 percent in February.

Gasoline accounted for over 60 percent of the 1.0 percent rise in goods prices last month. Goods prices increased 0.4 percent in February.

Wholesale food prices rose 0.3 percent in March, reversing a 0.3 percent drop in the prior month. Core goods prices rose 0.2 percent after edging up 0.1 percent in February.

The cost of services increased 0.3 percent in March after being unchanged in the prior month.

Prices for healthcare services fell 0.2 percent last month after rising 0.3 percent in February. The cost of hospital outpatient services fell by the most since July 2014. Those healthcare costs feed into the core PCE price index. (Reporting by Lucia Mutikani Editing by Paul Simao)