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Income, Spending Rise; Jobless Claims Fall

Personal incomes and core consumer prices increased slowly in September, but the number of U.S. workers filing new claims for jobless aid fell by a more-than-expected 6,000 last week.

Also, growth at U.S. factories deteriorated in September to its slowest pace since March as tighter credit conditions and a housing downturn proved a drag on production, according to a report released Thursday.

Incomes kept increasing slowly but steadily in September and core consumer prices posted a relatively modest rise, the Commerce Department said in a report implying little problem with inflation.

The department said personal incomes grew at a 0.4 percent annual rate in September, matching a revised 0.4 percent gain in August. The growth in incomes outstripped spending, which picked up at a 0.3 percent rate, down from a revised 0.5 percent increase in August.

So-called core prices that exclude food and energy items gained at a 0.2 percent rate, double the 0.1 percent rise in August.

Core Price Rise Modest

But on a year-over-year basis core prices were up just 1.8 percent. That was the same as in August, which department officials described at the time as the smallest year-on-year rise in core prices in 3-1/2 years.

Federal Reserve policy-makers said on Wednesday, when they announced a quarter-percentage-point cut in the trendsetting federal funds rate, that they continued to monitor prices carefully.

The Fed cited concern about the potential for inflation but there was little in the personal incomes report to suggest prices were accelerating.

The number of U.S. workers filing new claims for jobless aid fell by a more-than-expected 6,000 last week, government data on Thursday showed, while the four-week moving average of claims rose to a six-month high.

The Labor Department said initial claims for state insurance benefit totaled 327,000 on a seasonally adjusted basis in the week ending Oct. 27 after an upwardly revised 333,000 the prior week. This had previously been reported as 331,000 claims.

Economists surveyed by Reuters had expected 330,000 claims last week. The data was collected after the sample period for the monthly employment report, forecast to show 80,000 new non-farm jobs were created in October when it is released on Friday, holding the unemployment rate unchanged at 4.7 percent.

The four-week average of weekly claims, which helps smooth out fluctuations to expose the underlying jobs trend, increased 1,750 to 327,000, the highest reading since the week ending April 28, when they were 328,750, the department said.

A Labor Department official said that there were no special factors in connection with last week's data, and that California reported fewer than 1,000 claims directly attributed to the wildfires to hit that state late last month.

California reported a total of 7,027 new layoffs in the week ending Oct. 20, with layoffs in construction, agriculture, forestry and fishing. Michigan reported almost 5,000 fewer claims thanks to fewer layoffs in the automobile industry.

The number of so-called continuing claims rose by 65,000 to 2.59 million in the week ended Oct. 20, the latest period for which figures were available. The continuing claims total compared with economists' forecasts for 2.54 million claims.

ISM Index Falls

The Institute for Supply Management said its index of U.S. manufacturing fell to 50.9 from 52.0 in September, below forecasts for around 51.5. A reading of 50 separates growth from contraction.

The ISM data raised fears the central bank's cumulative 3/4-percentage point reduction in rates thus far might not be enough, prompting investors to buy bonds and push market
interest rates lower.

"It does appear that the impact of the slowdown in the financial, housing and transportation segments has spilled over into manufacturing with the exception being continued strength
in new export orders," ISM said in its report.

The survey's production index dipped into recessionary territory, diving five points to 49.6.

Preventing a further drop was a spike in exports, which have received a strong boost from the dollar's vertiginous decline.

"The details highlight the weakness of the domestic economy and the support being provided by global growth and weak U.S. dollar," said T.J. Marta, fixed-income strategist at RBC.

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