US jobs, inflation back Fed tapering

WASHINGTON - Reuters

AFP Photo

The number of Americans filing new claims for jobless benefits fell to a near six-year low last week and consumer prices rose broadly in July, which could draw the Federal Reserve closer to trimming its massive bond buying program.

The government reports yesterday painted a slightly upbeat picture of the labor market and hinted at pockets of pricing power in the sluggish economy. U.S. stock index futures and prices for U.S. Treasury debt fell on the data, which was viewed as increasing the chances of the Fed tapering its purchases in September.

“The data continues to improve and impress the marketplace and I think the data will continue in this direction. Then the question becomes not whether they are tapering in September, but how much,” said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.

Initial claims for state unemployment benefits dropped 15,000 to a seasonally adjusted 320,000, the lowest level since October 2007, the Labor Department said.

A Labor Department analyst said no states had been estimated and there was nothing unusual in the state-level data. He said there was less volatility in the data linked to automobile plant shutdowns that had plagued claims in July.

The four-week moving average for new claims, which irons out week-to-week volatility, fell 4,000 to 332,000, the lowest level since November 2007.

In a second report, the Labor Department said its Consumer Price Index rose 0.2 percent as the cost of goods and services ranging from tobacco to apparel and food increased. The CPI had increased 0.5 percent in June.

July’s increase in consumer inflation was in line with economists’ expectations.

In the 12 months through July, the CPI advanced 2.0 percent, the largest increase since February, after increasing 1.8 percent in June.

The push in inflation to the Fed’s 2 percent target could offer some comfort to some central bank officials who have warned on the potential dangers of inflation running too low.

Stripping out energy and food, consumer prices rose 0.2 percent for a third straight month. That took the increase over the past 12 months to 1.7 percent. The core CPI had gained 1.6 percent in June.

The uptick in prices fits in with Fed Chairman Ben Bernanke’s views that the low inflation was temporary.

The U.S. central bank has said it plans to start trimming the $85 billion in bonds it is purchasing each month to keep borrowing costs low later this year.

Most economists anticipate the Fed will make an announcement after its policy meeting in September on the future of the bond purchasing program.

Last week’s drop in both new applications and the four-week average offered hope of an improvement in labor market conditions after hiring slowed a bit in July.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid declined 54,000 to 2.97 million in the week ended Aug 3.