Jobless claims up slightly; labor market still improving

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.