US Economy Continues To Give Off Mixed Signals

The latest inflation and jobs data were somewhat better than expected, but the industrial sector showed continued weakness.

Initial jobless claims hit 461,000 in the most recent week, down 16,000 from the previous week, according to government data released Thursday. The four-week average was up slightly to 483,250. Continuing claims hit 3.7 million, a new recent high.

On the inflation front, the government's Consumer Price Index was unchanged in September, following a 0.1 percent decline the previous month, which is better than the consensus forecast of 0.1 percent.

On a core level,  prices were up 0.1 percent last month, after a 0.2 percent gain in July. Economists were expecting the inflation gauge to rise 0.2 percent.

Meanwhile, Mid-Atlantic factory activity plunged in October, a survey showed. The Philadelphia Federal Reserve Bank said its business activity index slumped unexpectedly hard to -37.5 in October from 3.8 in September.

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A reading below zero indicates contraction manufacturing in the region, which encompasses eastern Pennsylvania, southern New Jersey and Delaware and is as one of the first monthly indicators of the health of the U.S. manufacturing sector.

Also, industrial production fell 2.8 percent in September, the biggest decline in nearly 34 years, the Federal Reserve reported. Economists had expected a decline of 0.8 percent, after a revised 1-percent decline in August, initially reported as a 1.1 percent fall.

The latest CPI data follow a worse-than-expected report on producer prices Wednesday, wherein core prices rose 0.4 percent, twice what was expected.

The Fed said the drop in production was exacerbated by Hurricanes Gustav and Ike, as well as a strike at aircraft maker Boeing.

Investors' overall impression of this morning's economic stats was positive, and stocks opened higher.

AP

Still, recent labor-market measures point to recession and follow a dreadful report on retail sales Wednesday. The slight improvement in the headline level offered some consolation to a market, which suffered another brutal selloff yesterday.

Retail sales fell a greater-than expected 1.2 percent in September, while data for the two previous months was revised down.

Economists say there's a close connection between labor market and consumer spending trends, which tend to feed on one another.

Joblessness is expected to spike higher in the weeks ahead as financial firms lay off workers amid the credit crunch crisis.

The crunch is also beginning to permeate into the rest of the economy, affecting payrolls in other sectors such as technology and retail. The auto sector has been particularly hard hit, thanks to higher gasoline prices and the lending freeze.

Most economists now expect the national jobless rate -- now 6.1 percent -- to top 7 percent in the months ahead, with some forecasting a peak of of 8 percent sometime in 2009.

The government next reports unemployment rate data Nov, 7, just days after the presidential election.

With more economists saying the economy is in recession, there's growing speculation that the Federal Reserve will cut interest rates again at its Oct. 29 meeting. The Fed's key federal funds rate is already down to 1.50 percent, following a half-point cut last week.

Fed Chairman Ben Bernanke gave no hint of that in a speech Wednesday, saying that the central bank would "use all the tools at its disposal” to fight the financial crisis.

—Reuters contributed to this report.

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