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U.S. jobless data boosts labor market picture; trade deficit narrows

Job seekers attend a large career fair at Rutgers University in New Brunswick, New Jersey, January 6, 2011. REUTERS/Mike Segar

By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market continues to expand at a solid clip even as economic growth has stalled.

Sustained labor market strength supports views that the sharp slowdown in activity is probably temporary. A host of factors ranging from bad weather to a strong dollar sucked momentum from the economy in the first quarter.

"While the economy has decelerated, the fundamentals remain strong and the labor market points to a pick-up in overall activity in the second quarter," said Joe Brusuelas, chief economist at McGladrey in New York.

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 268,000 for the week ended March 28, the lowest level since January, the Labor Department said on Thursday. Economists had forecast claims at 285,000.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 14,750 to 285,500.

The bullish labor market tone was also underscored by signs that more people are coming off the unemployment benefits rolls.

The number of people still receiving benefits after an initial week of aid fell 88,000 to 2.33 million in the week ended March 21, the lowest reading since December 2000.

The strong labor market, together with an anticipated acceleration in consumer spending signaled by a surge in auto sales last month, should keep the Federal Reserve on track to start raising interest rates this year.

The U.S. central bank has kept its short-term interest rate near zero since December 2008.

Prices for U.S. Treasury debt fell, while stocks on Wall Street rose. The dollar slipped against a basket of currencies.

While the claims data has no bearing on Friday's March employment report as it falls outside the survey period, it should help allay fears of a long-lasting moderation in growth.

Nonfarm payrolls likely increased 245,000 last month, with the unemployment rate holding steady at a more than 6-1/2-year low of 5.5 percent, according to a Reuters survey of economists.

The economy, which has been hampered by weaker global demand and a now-settled labor dispute at the West Coast ports, as well as a strong dollar and a harsh winter, also got a boost from an unexpected rise in factory orders in February.


In a separate report, the Commerce Department said new orders for manufactured goods increased 0.2 percent, ending six straight months of declines. Orders excluding transportation rose 0.8 percent, the biggest gain in eight months.

Downbeat first-quarter growth estimates got a lift from a second report from the Commerce Department showing the trade deficit narrowed 16.9 percent to $35.4 billion in February, the smallest since October 2009.

When adjusted for inflation, the deficit narrowed to $50.8 billion in February from $54.6 billion the prior month.

Goldman Sachs raised its first-quarter growth forecast by three-tenths of a percentage point to a 1.0 percent rate, while forecasting firm Macroeconomic Advisers lifted its estimate to a 1.2 percent rate from 0.9 percent.

The economy grew at a 2.2 percent rate in the fourth quarter.

The buoyant dollar and sluggish global demand combined with better domestic consumption suggest the smaller trade deficit is probably temporary.

"We will be looking for imports to pick up in the coming months, as consumer spending gains some momentum in the midst of rising employment levels," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

The West Coast ports dispute appears to have slowed the flow of imports and exports.

In February, imports tumbled 4.4 percent to their lowest level since April 2011. Imports of petroleum products were the lowest since September 2004, with the average import price for crude oil at a near six-year low.

Exports fell 1.6 percent to their lowest level since October 2012. Exports to Canada and Mexico - the main U.S. trading partners - fell in February. Exports to China tumbled 8.9 percent, while those to the European Union were unchanged.

With imports from China plunging 18.1 percent, the politically sensitive U.S.-China trade deficit dived 21.2 percent to $22.5 billion.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)