US Weekly Jobless Claims Increase; Producer Inflation Subsides

The number of Americans filing new claims for unemployment benefits increased more than expected last week, further evidence that labor market conditions were easing as higher borrowing costs dampen demand in the economy.

The slowing momentum in the economy was underscored by other data from the Labor Department on Thursday showing producer prices unexpectedly falling in March, with underlying producer inflation subsiding. Still, the labor market and inflation are not cooling fast enough to stop the Federal Reserve from raising interest rates one more time next month.

"Fed officials couldn't ask for better data today as the economy looks like it is running out of gas finally after a year of rate hikes," said Christopher Rupkey, chief economist at FWDBONDS in New York. "Fed officials thought the economy might slow after the banking crisis and now it appears that the slowdown is happening."

Initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 239,000 for the week ended April 8. Economists polled by Reuters had forecast 232,000 claims for the latest week.

Unadjusted claims increased 27,457 to 234,577 last week, with filings in California surging 11,388. There were also significant gains in claims in New Jersey, Pennsylvania, Texas, New York and Connecticut. That offset a notable decline in Ohio.

Annual revisions to the data published by the government last week showed claims much higher so far this year than had been previously estimated, aligning with a rush of high-profile layoffs in the technology industries as well as other sectors highly sensitive to interest rates.

Claims however remain below the 270,000 level, a breach of which economists say would signal a deterioration in the labor market. Last Friday's employment report showed a slower but still-solid pace of job growth in March.

Job openings fell below 10 million at the end of February for the first time in nearly two years. Nevertheless, there were 1.7 vacancies for every unemployed person that month, which could make it easier for some laid-off workers to land a job.

The claims report showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 13,000 to 1.810 million during the week ending April 1.

There are no signs yet that a tightening in credit conditions following the failure of two regional banks last month has led to job losses.

Economists expect small businesses like restaurants, bars and nail salons would be affected by a credit crunch.

U.S. stocks opened higher. The dollar fell against a basket of currencies. U.S. Treasury prices were mixed.

GRAPHIC: Jobless claims

SERVICES PRICES FALL

Financial markets are betting that the Fed will increase rates by another 25 basis points at its May 2-3 policy meeting, according to CME Group's FedWatch tool. That will likely be the last rate hike in the U.S. central bank's fastest monetary policy tightening campaign since the late 1980s.

The Fed last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of halting further rate increases in a nod to the financial market turmoil. It has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75%-5.00% range.

In separate report on Thursday, the Labor Department said its producer price index for final demand dropped 0.5% in March, the most since April 2020, after being unchanged in February.

A 1.0% decline in goods prices accounted for two-thirds of the decrease in the PPI last month. Goods prices fell 0.3% in February. Gasoline prices plunged 11.7% last month, while food prices rebounded 0.6%.

There were also decreases in prices for diesel fuel, residential natural gas jet fuel and electric power. Gasoline prices are set to rebound after Saudi Arabia and other OPEC+ oil producers early this month announced further oil output cuts.

Excluding the volatile food and energy components, core goods prices rose 0.3% after a similar gain in February.

Prices for services fell 0.3%, the largest decline since April 2020. There was a 0.9% drop in margins for final demand trade services. The cost of transportation and warehousing services fell 1.3%.

In the 12 months through March, the PPI increased 2.7%. That was the smallest year-on-year rise since January 2021 and followed a 4.9% advance in February.

GRAPHIC: Inflation

The annual PPI rate is subsiding as last year's large increases drop out of the calculation. Economists had forecast the PPI unchanged on the month and climbing 3.0% year-on-year.

The government reported on Wednesday that overall consumer prices barely rose in March. While underlying inflation remained hot, rents rose at their slowest pace in nearly a year.

Excluding food, energy and trade services components, producer prices gained 0.1% in March. The core PPI climbed 0.2% in February. In the 12 months through March, the core PPI advanced 3.6% after increasing 4.5% in February.

"The link between the PPI and CPI is not as clear as it once was, but persistently small increases - or, as in March, an outright decline -- will eventually come through to consumers if demand slows enough to prevent companies from taking out the slack in the form of higher margins," said Chris Low, chief economist at FHN Financial in New York.

"For a Fed already inclined to pause, this report tips the scale just a bit more in favor, especially after yesterday's CPI failed to reveal any new inflationary problems."