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U.S. labor market tightening, inflation trending higher

A sign marks the entrance to a job fair in New York October 24, 2011. REUTERS/Shannon Stapleton

By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing for unemployment aid unexpectedly fell last week and consumer sentiment rose early this month amid continued optimism over household finances, suggesting a sharp slowdown in job growth in March was an aberration.

While other data on Thursday showed producer prices falling in March for the first time in seven months, prices recorded their biggest year-on-year increase in five years. The reports pointed to a steadily firming economy and could encourage the Federal Reserve to increase interest rates again in June.

"Today's reports are generally consistent with the Fed's narrative that the economy is close to full employment and some inflationary pressures are building," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania.

Initial claims for state unemployment benefits slipped 1,000to a seasonally adjusted 234,000 for the week ended April 8, the Labor Department said. That was the third straight weekly decline in claims and left them near a 44-year low of 227,000 hit in February.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 110 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the unemployment rate at a near 10-year low of 4.5 percent.

Economists had forecast first-time applications for jobless benefits rising to 245,000 last week.

The low level of claims suggests that a sharp slowdown in job growth in March was a blip and the labor market is tightening. Nonfarm payrolls increased by 98,000 jobs last month, the fewest since last May.

"Temporarily higher mid-March readings probably in large part reflected weather drags that were apparent in the March employment report, and much stronger results in the first half of April are pointing to a reacceleration in payrolls in April," said Ted Wieseman, an economist at Morgan Stanley in New York.

A separate survey from the University of Michigan showed its consumer sentiment index rising to a reading of 98.0 early this month from 96.9 in March.

The survey's current economic conditions index jumped to its highest level since 2000, with an increase in the share of households reporting an improvement in their finances.


Strong consumer sentiment could suggest an acceleration in consumer spending in the second quarter after an apparent slowdown at the start of the year. A surge in confidence in late 2016 and early this year failed to translate into stronger spending.

The dollar fell against a basket of currencies as investors assessed comments by President Donald Trump to the Wall Street Journal late on Wednesday that the dollar was "getting too strong" and that he liked a "low-interest rate policy."

U.S. Treasury yields briefly fell to a five-month low, while stocks on Wall Street were little changed. The Fed raised its benchmark overnight interest rate by a quarter of a percentage point last month and has said it expected to increase borrowing costs at least twice more this year.

In another report on Thursday, the Labor Department said its producer price index for final demand slipped 0.1 percent last month, the first decline since August. The PPI gained 0.3 percent in February.

Despite last month's dip in prices, the PPI shot up 2.3 percent in the 12 months through March. That was the biggest increase since March 2012 and followed a 2.2 percent jump in February.

A 0.1 percent dip in prices for final demand services accounted for three quarters of the drop in the PPI in March. Energy prices fell 2.9 percent, the first decline since August, with the cost of gasoline tumbling 8.3 percent.

With oil prices rising in recent days and recovering nearly all of March's losses, monthly producer prices are likely to resume their upward trend.

The dollar's 2.8 percent drop this year against the currencies of the United States' main trading partners is also keeping the underlying trend in producer prices elevated.

Final demand goods less food and energy increased 0.4 percent last month after edging up 0.1 percent in February.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)