US labour market gets tighter while inflation creeps higher

PUBLISHED : Friday, 14 April, 2017, 12:49am
UPDATED : Friday, 14 April, 2017, 12:49am

The number of Americans filing for unemployment aid unexpectedly fell last week and consumer sentiment rose early this month amid continued optimism over household finances, suggesting a sharp slowdown in job growth in March was an aberration.

While other data on Thursday showed producer prices falling in March for the first time in seven months, prices recorded their biggest year-on-year increase in five years. The reports pointed to a steadily firming economy and could encourage the Federal Reserve to increase interest rates again in June.

“Today’s reports are generally consistent with the Fed’s narrative that the economy is close to full employment and some inflationary pressures are building,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 234,000 for the week ended April 8, the Labour Department said. That was the third straight weekly decline in claims and left them near a 44-year low of 227,000 hit in February.

Claims have now been below 300,000, a threshold associated with a healthy labour market, for 110 straight weeks. That is the longest such stretch since 1970, when the labour market was smaller. The labour market is close to full employment, with the unemployment rate at a near 10-year low of 4.5 per cent.

Economists had forecast first-time applications for jobless benefits rising to 245,000 last week.

The low level of claims suggests that a sharp slowdown in job growth in March was a blip and the labour market is tightening. Non-farm payrolls increased by 98,000 jobs last month, the fewest since last May.

“Temporarily higher mid-March readings probably in large part reflected weather drags that were apparent in the March employment report, and much stronger results in the first half of April are pointing to a reacceleration in payrolls in April,” said Ted Wieseman, an economist at Morgan Stanley in New York.

A separate survey from the University of Michigan showed its consumer sentiment index rising to a reading of 98.0 early this month from 96.9 in March.

The survey’s current economic conditions index jumped to its highest level since 2000, with an increase in the share of households reporting an improvement in their finances.

Strong consumer sentiment could suggest an acceleration in consumer spending in the second quarter after an apparent slowdown at the start of the year. A surge in confidence in late 2016 and early this year failed to translate into stronger spending.

In another report on Thursday, the Labour Department said its producer price index for final demand slipped 0.1 per cent last month, the first decline since August. The PPI gained 0.3 per cent in February.

Despite last month’s dip in prices, the PPI shot up 2.3 per cent in the 12 months through March. That was the biggest increase since March 2012 and followed a 2.2 per cent jump in February.