Job­less claims up slightly; la­bor mar­ket still im­prov­ing

The Pak Banker - - BUSINESS -

The num­ber of Amer­i­cans fil­ing new ap­pli­ca­tions for un­em­ploy­ment ben­e­fits un­ex­pect­edly rose last week, but the trend re­mained con­sis­tent with solid la­bor mar­ket mo­men­tum that could keep the Fed­eral Re­serve on track to raise in­ter­est rates this year.

Ini­tial claims for state un­em­ploy­ment ben­e­fits in­creased 4,000 to a sea­son­ally ad­justed 277,000 for the week ended Aug. 15, the La­bor Depart­ment said on Thurs­day.

Claims for the prior week were re­vised to show 1,000 fewer ap­pli­ca­tions re­ceived than pre­vi­ously re­ported. Econ­o­mists had forecast claims slip­ping to 272,000 last week. A La­bor Depart­ment an­a­lyst said there were no spe­cial fac­tors in­flu­enc­ing the data and no states had been es­ti­mated.

Min­utes from the Fed's July 28-29 pol­icy meet­ing pub­lished on Wed­nes­day showed the cen­tral bank up­beat on im­prov­ing la­bor mar­ket con­di­tions, but wor­ried about per­sis­tently tame in­fla­tion and a weak global econ­omy. The four-week mov­ing av­er­age of claims, con­sid­ered a bet­ter mea­sure of la­bor mar­ket trends as it irons out weekto- week volatil­ity, rose 5,500 to 271,500 last week.

It was the 21st straight week that the four-week av­er­age re­mained be­low the 300,000 thresh­old, which is usu­ally as­so­ci­ated with a strength­en­ing la­bor mar­ket. The claims data cov­ered the week that the gov­ern­ment sur­veyed em­ploy­ers for the non-farm pay­rolls por­tion of Au­gust's em­ploy­ment re­port. The four-week av­er­age of claims fell 7,000 be­tween the July and Au­gust sur­vey pe­ri­ods, sug­gest­ing another month of healthy job gains.

Pay­rolls in­creased by 215,000 jobs in July. So far this year, job gains have ex­ceeded 200,000 in five out of seven months. At a seven-year low of 5.3 per­cent, the un­em­ploy­ment rate is near the 5.0 per­cent to 5.2 per­cent range that most Fed of­fi­cials think is con­sis­tent with full em­ploy­ment.

Thurs­day's claims re­port showed the num­ber of peo­ple still re­ceiv­ing ben­e­fits af­ter an ini­tial week of aid fell 24,000 to 2.25 mil­lion in the week ended Aug. 8. Ear­lier, La­bor Depart­ment said con­sumer prices rose only slightly in July as air­line fares recorded their big­gest drop since 1995, but tame in­fla­tion pres­sures will prob­a­bly not dis­cour­age the Fed­eral Re­serve from rais­ing in­ter­est rates this year.

The said its Con­sumer Price In­dex edged up 0.1 per­cent last month, with ga­so­line and food prices in­creas­ing marginally. July's rise marked a sixth straight monthly in­crease. While in­fla- tion re­mains soft, a strength­en­ing econ­omy, marked by a tight­en­ing la­bor mar­ket and a firm­ing hous­ing sec­tor, should give the U.S. cen­tral bank con­fi­dence it will grad­u­ally move to­ward its 2 per­cent tar­get, econ­o­mists said.

"Fed of­fi­cials made clear that they do not need to see higher in­fla­tion be­fore hik­ing. They just need to have rea­son­able con­fi­dence it will re­turn to man­date," said Michelle Gi­rard, chief economist at RBS in Stam­ford, Con­necti­cut. Most econ­o­mists have been ex­pect­ing the Fed to raise its short­term in­ter­est rate next month for the first time in al­most a decade. Fu­tures mar­kets on Wed­nes­day trimmed bets for a Septem­ber liftoff af­ter min­utes of the Fed's July 28-29 meet­ing showed pol­i­cy­mak­ers re­mained con­cerned about weak in­fla­tion and tepid wage gains, even as an im­prov­ing job mar­ket had drawn them closer to a rate hike.

U.S. stocks briefly turned pos­i­tive af­ter re­lease of the min­utes be­fore end­ing al­most 1 per­cent lower as con­cerns about China's econ­omy con­tin­ued to weigh. Trea­sury prices rose and the dol­lar fell against a bas­ket of cur­ren­cies. "It was a mixed mes­sage, but it still seems in­evitable that we will get higher rates," said Macrae Sykes, an­a­lyst at Ga­belli and Co in Rye, New York. In the 12 months through July, the CPI climbed 0.2 per­cent. It was the sec­ond month the an­nual CPI in­creased af­ter plung­ing crude oil prices pushed it into neg­a­tive ter­rain in Jan­uary.

Signs of an ebb in the dis­in­fla­tion­ary trend, com­bined with eas­ing la­bor mar­ket slack and a pickup in eco­nomic growth are likely to be wel­comed by pol­i­cy­mak­ers. Any mon­e­tary tight­en­ing by the Fed is likely to be grad­ual given the damp­en­ing ef­fect on in­fla­tion of a strong dol­lar, re­newed weak­ness in oil and other com­mod­ity prices, and China's de­val­u­a­tion of the yuan, which should push down im­port prices. "The low in­fla­tion pro­file will cer­tainly keep the Fed com­mu­ni­cat­ing a grad­ual glide path, but lit­tle in the July CPI re­port sug­gests that hikes should be de­layed," said Gen­nadiy Gold­berg, an economist at TD Se­cu­ri­ties in New York.

Gold­berg noted that the six-month an­nu­al­ized pace of the CPI ac­cel­er­ated to 2.9 per­cent from 1.3 per­cent in June.

Although the so-called core CPI, which strips out food and energy costs, rose only 0.1 per­cent last month, that was largely be­cause of the 5.6 per­cent de­cline in air­line fares. Econ­o­mists ex­pect the drop in air ticket prices, which was the largest since De­cem­ber 1995, will be tem­po­rary. Hous­ing costs shot up 0.4 per­cent, the big­gest in­crease since Fe­bru­ary 2007. That was on top of a 0.3 per­cent gain in June.

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