Jobless Claims, Factory Data Suggest Recovery Picking Up

Government reports on weekly jobless claims and manufacturing activity in the Northeast for December released Thursday offered fresh evidence the U.S. economic recovery is picking up steam.

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Inflation also remained in check last month, with wholesale prices rising modestly, a separate report showed.

New U.S. claims for unemployment benefits dropped to a 3 1/2 year low last week, a government report showed on Thursday, suggesting the labor market recovery was gaining speed.

Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 366,000, the Labor Department said. That was the lowest level since May 2008.

The prior week's claims data was revised up to 385,000 from the previously reported 381,000. Economists polled by Reuters had forecast claims rising to 390,000 last week.

The unexpected drop in claims last week pushed them closer to the 350,000 mark that analysts say signals labor market strength.

It offered further evidence of increased momentum in the pace of economic activity, even though retail sales rose modestly in November. This is in sharp contrast to Europe, where the festering sovereign debt crisis has already pushed some economies into recession .

The Federal Reserve on Tuesday acknowledged the improvement in the jobs market, but said unemployment remained high. The jobless rate dropped to a 2 1/2 year low of 8.6 percent in November.

The U.S. central bank said the debt crisis gripping Europe was a big risk to the U.S. economy, which it described as "expanding moderately.''

A Labor Department official said there was nothing unusual in the state level data and noted that only one state had been estimated.

The four-week moving average of claims, considered a better measure of labor market trends, fell 6,500 to 387,750 — the lowest since mid-July 2008.

The number of people still receiving benefits under regular state programs after an initial week of aid edged up 4,000 to 3.6 million in the week ended Dec. 3.

Economists had forecast so-called continuing claims rising to 3.63 million from a previously reported 3.58 million. The number of Americans on emergency unemployment benefits increased 254,642 to 3.05 million in the week ended Nov. 26, the latest week for which data is available.

A total of 7.45 million people were claiming unemployment benefits during that period under all programs, up 874,670 from the prior week.

New York Factory Orders Pick Up

A gauge of manufacturing in New York State showed growth accelerated in December to its highest level since May as new orders improved, the New York Federal Reserve said in a report on Thursday.

The New York Fed's "Empire State" general business conditions index rose to 9.53 from 0.61 the previous month. Economists polled by Reuters had expected a reading of 3.00.

New orders rose to 5.10 from minus 2.07, while inventories gained to minus 3.49 from minus 12.20. New orders were also at their highest level since May.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. The gain in December added on to improvement last month that pulled the index out of a five-month contraction.

Employment gauges continued to be mixed. The index for the number of employees perked up at 2.33 from minus 3.66, but the average employee workweek index fell to minus 2.33 from 2.44.

The Federal Reserve has long maintained that inflation will settle at levels at or below those consistent with its price stability mandate.

Last month, wholesale prices were pushed up by a 1 percent rise in food prices. Vegetables accounted for more than half of the increase in food prices last month. Food prices rose 0 .1 percent in October.

Gasoline prices edged down 0.1 percent after falling 2.4 percent in October.

In the 12 months to November, producer prices increased 5.7 percent after rising 5.9 percent the prior month. Wholesale prices outside of food and fuel were bumped up by passenger car prices, which are on the rise again after floods in Thailand disrupted supply chains.

Motor vehicle production was earlier this year disrupted by the earthquake and tsunami in Japan. Passenger car prices rose 0.6 percent after falling 0.8 percent in October. Prices for light motor trucks fell 0.2 percent after dropping 1.6 percent in October.

Wholesale Prices Up Modestly

Wholesale prices rose a modest 0.3 percent last month, as companies paid more for such items as food and pharmaceuticals. But energy prices barely rose, keeping inflation in check, the AP reported.

In the 12 months ending in November, wholesale prices have increased 5.7 percent, down from a 5.9 percent year-over-year pace in October, the Labor Department said Thursday. It's the smallest yearly increase since March. The department's producer price index measures price changes before they reach consumers.

Excluding the volatile food and energy categories, the so-called "core" index rose 0.1 percent, after a flat reading the previous month. In the 12 months ending in November, the core index rose 2.9 percent, up a yearly pace of 2.8 percent in October.

Most economists say they think inflation has peaked and will slowly decline next year. That's because prices for oil and many agricultural commodities have fallen from their highs this spring. Slower growth in China and a possible recession in Europe have reduced global demand for energy and other goods.

Lower price growth means consumers will have more buying power, potentially boosting consumer spending. The jump in gas and food prices earlier this year limited the ability of consumers to buy other goods, thereby slowing the economy.

Consumer spending rebounded in the July-September quarter as prices eased. The stronger spending helped increase growth to an annual rate of 2 percent from a slight 0.9 percent in the first half of the year.

Economists expect consumer spending to rise again in the last three months of this year and think growth could top 3 percent. Federal Reserve policymakers, like many private economists, predict inflation will fall next year. That would give the central bank more latitude to hold down interest rates and potentially take other steps to stimulate the economy.

The Fed declined to make any new moves at its latest meeting Tuesday. It reiterated its commitment to keep the benchmark short-term rate it controls at nearly zero through mid-2013. If there were signs that inflation was increasing to worriesome levels, the Fed would likely raise rates.

The central bank said last month that it expects consumer inflation to fall from about 2.8 percent this year to roughly 1.7 percent next year. That's in the Fed's preferred range of core inflation of about 1.7  percent to 2 percent. Economists at Wells Fargo expect it to drop to 1.8 percent by the end of next year.

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.