Your Economy (No Politics)

[Bullwinkle]

Job claims signal labor market tightening By Alister Bull
By Alister Bull
Thu Feb 9, 1:52 PM ET


WASHINGTON (Reuters) - U.S. jobless claims rose less than expected last week in the latest sign of tightening labor markets, which may prompt the Federal Reserve to hoist interest rates to 5.0 percent before pausing.

A separate report on wholesale inventories was also stronger than forecast and signaled a modest upward revision in the pace of gross domestic product growth in the fourth quarter of 2005, initially reported at a mere annualized 1.1 percent.

The Labor Department said on Thursday the number of U.S. workers making new claims for state unemployment benefits rose 4,000 to 277,000 in the week ended February 4. Wall Street analysts had forecast a larger increase to 285,000.

A Labor Department analyst said there were no special factors behind the rise, and the data had little impact on financial markets.

It was the fifth week in the last six that claims were below 300,000. As a rule of thumb, some analysts say 350,000 is a threshold signaling a stable market and being consistently beneath this level a sign of strength.

"Claims are still suggesting that the economy started the year with a strong employment situation," said Gary Thayer, chief economist at A.G. Edwards & Sons in St Louis.

"We still don't know how much of this is weather-related ... but if claims hold at these levels it would tell us that the job situation looks much more favorable than a year ago," he said.

Unseasonably mild weather in January boosted construction employment and some economists think the underlying picture is not as rosy as recent data suggest.

"We have been quite skeptical throughout January because data tend to be erratic around the holidays and the turn of the year," said Stephen Stanley, chief economist at RBS Greenwich Capital.

"However, we are reaching a point on the calendar when the data should be settling down, and there is no indication that the number of new filers is poised to move back to the 310,000 to 340,000 range that prevailed in 2005 prior to the hurricanes," he said.

FULL EMPLOYMENT

The claims numbers followed upbeat news from the job market in January, when the U.S. unemployment rate fell to 4.7 percent, its lowest level in 4-1/2 years, as employers hired 193,000 workers in the month.

Analysts say much of the slack in the U.S. labor market has been mopped up, and with the economy near full employment -- a theoretical level indicating the lowest level of unemployment that can be sustained without triggering wage inflation -- the Fed will keep lifting interest rates.

U.S. growth is also expected to rebound smartly in the first quarter. And buoyant indications from the labor market are seen as compelling evidence of the economy's underlying strength, provided the trend is sustained.

Against this backdrop, the Fed has raised the target overnight fed funds rate in 14 quarter-percentage-point steps since June 2004 to 4.5 percent and financial futures markets see another move at its next meeting, on March 27-28. Odds that official rates will have reached 5.0 percent by July are hovering around 75 percent.

"If unemployment continues to decline and the economy grows at an above-average pace ... I think they (the Fed) will be a little more concerned about bottlenecks," said Thayer, referring to job shortages that can push up wages.

The four-week moving average of initial claims, which smooths weekly volatility to yield a more reliable indication of underlying trends, declined by 7,750 to 276,500, its lowest level since April 2000.

The report also showed the number of people still on the jobless rolls after drawing an initial week aid rose by 60,000 to 2.56 million in the week ended January 28, the most recent period for which these data are available. Wall Street had expected continued claims to rise to 2.52 million.

In other data, the Commerce Department said wholesale inventories rose 1.0 percent in December, above expectations, as car stocks climbed and inventories of non-durable goods posted the largest monthly gain in nearly five years.

Wall Street had forecast a 0.4 percent increase in wholesale inventories. The inventories-to-sales ratio, which measures how quickly stocks would be depleted at the current sales pace, was unchanged at 1.15 months' worth in December, a historically lean level.

Following other recent economic indicators, analysts said the inventories report added to a mild upward revision in the pace of the economy in the final three months of 2005.

"Combining the data on construction spending, manufacturing inventories, capital goods shipments, and wholesale inventories released since the GDP report, we now see fourth quarter GDP being revised up to 1.5 percent from the advance estimate of 1.1 percent," Morgan Stanley economist Ted Wieseman noted.

http://news.yahoo.com/s/nm/20060209/bs_nm/economy_dc_3