New claims for unemployment benefits unexpectedly fell last week to a near four-year low, a government report showed on Thursday, suggesting the labor market was finally strengthening.

Housing starts rose more than expected in January as groundbreaking on rental property surged, boosting hopes the still-weak housing sector could help economic growth this year.

U.S. January producer prices rose 0.1 percent.

COMMENTS:

ELLEN ZENTNER, SENIOR U.S. ECONOMIST, NOMURA SECURITIES, NEW YORK

Anytime we get improvement in these labor market indicators it's significant. Claims have been on a downward trend. It's clear that downward trend has continued and is deepening, and that points to an acceleration in job growth. So very good news.

We think that four-week moving average will continue to show that downward trend remains in place.

There was a surprise in both the headline and the core. For the headline, we had expected a pop in wholesale gasoline prices. It's been worrisome that gasoline prices have been on the rise, but warm weather strikes again.

Warm weather led to much lower demand for heating oil and residential natural gas, and we saw some big declines in those areas and that held that headline PPI to a minimum, up only one-tenth of a percent.

The core, the increase there, four-tenths, was very surprising. But 40 percent of that came from one particular area, and that was drug prices. That's a one-off.

One category accounting for 40 percent of the increase in the core means that you can dismiss that as a one-off.

KEVIN CARON, MARKET STRATEGIST, STIFEL, NICOLAUS & CO, FLORHAM PARK, NEW JERSEY

The data was decent. Housing and employment have been weak spots for the economy and data shows an improvement so that's a very good sign. Seeing something positive in housing is very good.

The most important figure today was initial jobless claims. The job market is getting better and that's really key.

We're still in the early innings of this but I'm glad to see another data point that adds to the picture of an improving economy.

To some extent there's been some recognition by the equities market (that the job market is getting better).

DAVID COARD, HEAD OF FIXED INCOME SALES AND TRADING, THE WILLIAMS CAPITAL GROUP, NEW YORK

It looks like the (Treasuries) market has come off, and I think it was probably that core PPI number. But I wouldn't get too worked up about it because tomorrow's inflation indexes are going to be more important. The market is going to be most interested in whether prices at the retail level are rising.

I am not so worried about inflation even though I have become more of a bull on the economy. Even as we move forward in this recovery I don't know that the economy is likely to really heat up because structurally the economy isn't going to be able to take on the same amount of leverage that got us into this mess. A lot of changes have occurred structurally to reduce how much we can lever ourselves. Also, because of what we have been through our attitudes toward leverage have been ratcheted down. While I am bullish on the economy I don't see growth getting away from us enough to the point where it becomes inflationary any time soon.

MIKE SHEA, A MANAGING PARTNER AND TRADER AT DIRECT ACCESS PARTNERS LLC IN NEW YORK

The jobless data is another brick in the wall, another example of the fact that slowly but surely--slower than we'd like-- our economy is bouncing back. Still, global macro issues are always going to trump what's going on in the U.S., at least this global issue (Europe). Until we get a clear resolution, I don't see the U.S. market running from his point. We're going to be held back.

JACOB OUBINA, SENIOR U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

JOBLESS CLAIMS: There was nothing unusual in the jobless claims data as per the Department of Labor. It looks like we're actually shifting to a lower level than we even thought. It looks like 350,000 is the level, at least in the short term. But we have to keep in mind that the pipeline of layoffs could pose some problems down the road.

PPI: I would just take the core jump of four tenths with a grain of salt given the prescription drugs component. That tends to jump at this time of year.

In terms of PPI, people were braced for a much firmer headline print here but the decline in housing prices and utilities took some of the bite out of it.

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

Initial claims for the week to February 11 defied market expectations for an upward correction in an improving trend, falling by 13k to 348k, their lowest level since March 8 2008. For the series to produce a third straight decline is unusual and suggests the improvement in the labor market is maintaining and even extending momentum as we enter February, for which next week will see the non-farm payroll surveyed. Giving further support to the positive message is a 100k decline in continuing claims in the week to February 4, to 3.426 mln, this the lowest level since August 23 2008.

(Americas Economics and Markets Desk)

Inflation Unemployment