Government reports on Thursday suggested an acceleration in job growth in early August and hinted at pockets of pricing power in the sluggish economy. The data could ease concerns among some Federal Reserve officials that inflation has been too low and the job market too weak, drawing the central bank closer to tapering off its economic stimulus program.
While statistics on manufacturing were less encouraging, economists were little fazed and said they merely suggested that the improvement in factory activity was slower than anticipated.
“It looks like the weakness in employment last month was a fluke, and the breadth of gains” in the Consumer Price Index suggest that “there will be less pushback against tapering because of low inflation,” said Ryan Sweet, a senior economist at Moody’s Analytics. “A September taper is still on the table.”
The Fed has indicated that it wants to wind down its monthly purchase of $85 billion in Treasury and mortgage-backed securities, perhaps by September.
First-time applications for state unemployment benefits dropped 15,000 to a seasonally adjusted 320,000, the lowest level since October 2007, the Labor Department said. Economists had expected initial claims to come in at 335,000 last week.
The four-week moving average of new jobless claims, which irons out week-to-week volatility, fell to its lowest level since November 2007.
Carl Riccadonna, a senior economist at Deutsche Bank Securities, said the drop in new jobless claims to prerecession levels was consistent with a pickup in the pace of hiring, if not in August, then at some time in the next couple of months.
“The critical component is going to be the August jobs report,” he said. “If that comes in at least where it was in July, then this is going to keep the Fed on track to initiate tapering at the September meeting” of the Fed’s policy makers.
Employers added 162,000 jobs to their payrolls last month, with the unemployment rate dropping to 7.4 percent.
In another report, the Labor Department said its Consumer Price Index rose 0.2 percent last month, in line with economists’ expectations, as the cost of goods and services including tobacco, apparel and food increased.
The C.P.I. gained 0.5 percent in June. In the 12 months through July, the C.P.I. advanced 2 percent, the largest annualized increase since February, after rising 1.8 percent in June.
The rise in inflation to the Fed’s 2 percent target suggested that the downward drift in prices seen early in the year was over, which could comfort some central bank officials who have warned about the potential dangers of inflation running too low.
Even stripping out energy and food, the core rate of consumer prices still rose 0.2 percent for a third consecutive month. That took the increase over the last 12 months to 1.7 percent after core C.P.I. gained 1.6 percent in June.
The uptick in prices fits with the view of Ben S. Bernanke, the Fed chairman, who has said he considers the low inflation temporary.
James Bullard, the president of the Federal Reserve Bank of St. Louis, who has voiced concern that inflation was still too low, said he was encouraged by July’s rise in consumer prices.
“To the extent that you have got higher inflation numbers in this report, that would be bolstering the notion that inflation would be naturally moving back toward target,” Mr. Bullard told reporters in Louisville, Ky.
Last month, there were increases in the prices of gasoline, transportation and shelter. Medical care services recorded a second month of gains in July. Medical care, which makes up about 10 percent of the core C.P.I., was subdued in April and May.
The news on the factory sector was a bit downbeat, with the Fed reporting that manufacturing output slipped 0.1 percent last month, held down by a 1.7 percent fall in the production of motor vehicles and machinery. That, together with a drop in utilities production, left industrial output unchanged in July.
Separately, the Federal Reserve Bank of New York said its Empire State general business conditions index fell to 8.24 in August from 9.46 in July. A reading above zero indicates expansion. But details of the report were fairly encouraging, with strong gains in the labor market.
Article source: http://www.nytimes.com/2013/08/16/business/economy/job-and-price-data-may-signal-the-end-for-federal-stimulus.html?partner=rss&emc=rss