Jobless claims, wholesale prices increase slightly

WASHINGTON -- New claims for jobless benefits inched up last week but were still at a level suggesting the pace of layoffs is stabilizing. Wholesale prices nudged up for July, too.

The Labor Department reported Thursday that new applications filed for unemployment insurance edged up by a seasonally adjusted 2,000 to 398,000 for the work week ending Aug. 9. Even with the rise, claims have been under 400,000 -- a level associated with a weak labor market -- for four straight weeks, an encouraging sign, economists said. Claims hit a high this year of 459,000 in the middle of April.

The more stable, four-week moving average of new claims fell last week to 394,250, the lowest level since the week ending Feb. 15.

"This points to a clear, if gradual, improvement in labor market conditions," said Ken Mayland, president of ClearView Economics.

The number of people drawing jobless benefits for more than one week dropped by 6,000 to 3.7 million for the week ending Aug. 2, the most recent period for which that information is available. That was the lowest level since the middle of July.

In a second report, the Producer Price Index, which measures prices of products before they reach store shelves, rose by just 0.1 percent in July, restrained by falling prices for food and moderation in energy prices. In June, wholesale prices jumped 0.5 percent, mostly reflecting sharply higher costs for energy products.

The performance of the PPI in July matched economists' expectations. Economists said the report may ease -- but not eliminate -- the Federal Reserve's fears about the remote threat that already low inflation could keep moving lower and turn into deflation, an economically dangerous slide in prices.

Excluding food and energy prices, which can swing widely from month to month, "core" wholesale prices rose by 0.2 percent in July, compared with a 0.1 percent decline in June. Rising prices for cars, light trucks and pharmaceutical preparations contributed to the increase in core prices in July.

"As the economy recovers, it will do so without a significant threat of either steep inflation or deflation. Both bear careful watching, but both are non-factors at the moment," said Ron Schreibman, senior vice president at the National Association of Wholesaler-Distributors.

Amid signs of an economic revival, Fed Chairman Alan Greenspan and his colleagues decided Tuesday to leave a key short-term interest rate at a 45-year low of 1 percent and hinted it may stay there for some time.

With the Fed more concerned about inflation going down, rather than up, the central bank has leeway to hold the funds rate at low levels for a while even if the economy picks up speed in the second half of this year, economists said.

The Fed has said repeatedly that it must be on guard against even a remote threat of deflation, because of its potential to wreck the economy. "The probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level," the central bank said Tuesday.

Energy prices in July increased 0.3 percent, down from a 3.4 percent jump in June. In July falling prices for liquefied petroleum gas, such as propane, and residential electric power blunted rising prices for gasoline and home heating oil.

Food prices declined by 0.2 percent in July, compared with a 0.4 percent rise in June. Beef and veal prices -- which had been rising -- dropped by 5.6 percent, the largest decline since April 1995. Prices for pork and vegetables also went down.

The current economic climate makes it difficult for producers to raise prices, which is a benefit for consumers but can squeeze producers' profit margins.

Economists believe the economy will gain traction in the second half of this year, with some estimating economic growth clocking in at an annual rate of 3.5 percent or 4 percent or more. Businesses want profits to improve and want to be sure the recovery is vigorous before they step up capital investment and hiring, economists said. Those are two key ingredients for the economy to get back to full throttle.

In a third report, the Commerce Department said the U.S. trade deficit narrowed in June to $39.5 billion as exports climbed to the highest level in two years, helped out by better economic growth overseas. Imports were flat.

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On the Net

Jobless claims and Producer Price Index: www.dol.gov/