The number of U.S. workers filing new claims for unemployment benefits fell last week by more than economists expected, bucking the typical July trend as fewer factories were shuttered for the summer.
Separately, falling food and energy costs pushed down U.S. producer prices for a third straight month in June, while core prices remained tame. Price pressures deeper in the production pipeline posted big declines, as well. Meanwhile, U.S. industries boosted production in June but only slightly and manufacturing posted a decline, a sign the sector that has led the economic recovery is cooling.
In its weekly report Thursday, the Labor Department said the number of U.S. workers filing initial claims for jobless benefits decreased by 29,000 to 429,000 in the week ended July 10. That is the lowest level for claims since August 23, 2008 — just as the financial crisis was nearing its height.
Economists surveyed by Dow Jones Newswires had expected claims would fall by 9,000.
The previous week’s level was revised slightly upward, from 454,000 to 458,000. But the four-week moving average — which aims to give a better idea of the trend by smoothing volatility in the data — fell by 11,750 to 455,250 in the week ended July 10. The prior week’s average was revised to 467,000.
Claims lasting more than one week, meanwhile, jumped in the week ended July 3 to reverse declines posted in the prior week.
Although claims in July typically tend to rise as factories shut down for part of the summer, analysts widely expected to see big declines in the July 10 data after General Motors Co. announced plans to keep most of its plants open for the season.
A Labor Department economist said Thursday, however, that GM is not the only driving force behind the large decline.
“This was not just a GM thing,” he said. “We saw this across a number of different states.” He added that more data on this will be available next week.
But whether or not this improvement in the figures will last remains to be seen.
Other economic indicators are starting to point to a possible slowdown in U.S. growth, driven largely by the high 9.5% unemployment rate. The lack of available jobs has led to a decline in consumer spending for the past two months, with retail sales down 0.5% in June. The U.S. economy also shed 125,000 nonfarm payrolls in June as temporary Census workers lost their jobs and the private sector only added an additional 83,000 jobs.
In the Labor Department’s report Thursday, the number of continuing claims — those drawn by workers for more than one week in the week ended July 3 — rose by 247,000 to 4,681,000 from the preceding week’s revised level of 4,434,000.
The unemployment rate for workers with unemployment insurance for the week ended July 3 was 3.7%, a 0.2 percentage point increase from the prior week’s revised rate of 3.5%.
The largest decrease in claims for the week ended July 3 occurred in Florida, which saw claims fall by 3,586. Other states with decreases included Georgia, Connecticut, Pennsylvania and Iowa.
The largest increase in claims occurred in New York, which saw claims rise by 8,066 in the week ended July 3 due to layoffs in the service and transportation industries. Other states with increases included New Jersey, Michigan, Illinois and Ohio.
Wholesale Prices Decline
The data should further cement expectations that the Federal Reserve will wait until next year before it starts raising interest rates. While the more closely watched core index, which strips out volatile food and energy costs, has remained fairly steady, the report may also fuel speculation that the Fed will have to resort to additional ways to stimulate growth.
The producer price index for finished goods fell 0.5% on a seasonally adjusted basis last month, the Labor Department said Thursday. That followed unrevised declines of 0.3% in May and 0.1% in April.
The decrease in June was bigger than the 0.2% fall predicted by economists in a Dow Jones Newswires survey.
Core prices advanced 0.1% last month, as expected.
Inflation pressures have been easing recently as the economic recovery has lost some steam, reviving concerns of deflation among some Fed officials. Citing the rising risk of a drop in the annual rate of inflation, Boston Fed President Eric Rosengren told the Wall Street Journal in an interview published Tuesday that the central bank has several options to counter a slowdown — including buying more assets, reinvesting proceeds from maturing mortgage debt, and keeping rates low for even longer.
Thursday’s report showed that producer prices remained 2.8% higher than a year ago, with core prices up 1.1% on an annual basis.
Fed officials trimmed their growth and inflation forecasts last month, according to minutes from the June 22-23 policy meeting released Wednesday. Core inflation is expected to end the year between 0.8% and 1%, and remain below the Fed’s informal target of 1.5% to 2% through 2012.
June import prices posted their biggest drop since January 2009 on the back of falling energy costs, according to a report Wednesday. Data due out Friday is expected to show consumer prices remaining steady last month.
Energy prices were down 0.5% in June, after sliding 1.5% the previous month. Wholesale gasoline prices decreased 1.6%.
Food prices fell 2.2%, the biggest decline since 2002, on the back of a 21.8% drop in fresh and dry vegetables.
Prices of passenger cars decreased 0.5% last month, while light truck prices declined 1.0%.
Bigger declines were registered deeper in the production pipeline, suggesting a lack of inflation pressures going forward. Prices of raw materials, known as crude goods, slid 2.4% on the month. Core crude goods prices were down 4.8%.
Intermediate goods prices fell 0.9% in June, with the core index declining 0.4%.
Industrial Output Rise
Industrial production rose 0.1%, after jumping an unrevised 1.3% in May, the Federal Reserve said Thursday.
The increase in June was unexpected; economists surveyed by Dow Jones Newswires had forecast a 0.1% decline. But the softness of the gain, fed by utilities amid hot weather last month, gave another suggestion of slowing growth in U.S. manufacturing.
The data said manufacturing output fell 0.4% in June, led by a big drop in car production. Appliances, furniture and carpeting also tumbled. Home electronics, though, rose 2.6%. Business equipment increased 0.9%. Utilities output rose 2.7%. Mining went up 0.4%.
The factory sector has been in front of other parts of the recovering economy, such as housing. Year over year, industrial production is up 8.2%. The latest Institute for Supply Management’s manufacturing index moved to 56.2 in June — down from 59.7 and 60.4 recorded for prior months. Readings above 50 signal expansion; therefore, June’s ISM reading, while a drop, reflected continued growth, yet at a slower pace.
The Fed report Thursday showed the rate of capacity U.S. industries operate held steady in June, at 74.1%, which was in line with expectations of economists. The 1972-2009 average was 80.6%.
Output by the service sector, which makes up most of the U.S. economy, isn’t reflected in the industrial production data.
By Sarah N. Lynch and Tom Barkley – wsj.com
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