U.S. WEEKLY JOBLESS CLAIMS FALL; consumer prices rise more than expected....
WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months, while consumer prices increased further in May as the pandemic's easing grip on the economy continues to boost domestic demand.
Initial claims for state unemployment benefits totaled a seasonally adjusted 376,000 for the week ended June 5, compared to 385,000 in the prior week, the Labor Department said on Thursday. That was the lowest since mid-March 2020 when the first wave of COVID-19 infections barreled through the country, leading to closures of nonessential businesses.
Claims have now declined for six straight weeks. Layoffs are abating, with employers scrambling for labor as millions of unemployed Americans remain at home because of trouble securing child care, generous unemployment benefits and lingering fears of the virus even though vaccines are now widely accessible.
Economists polled by Reuters had forecast 370,000 applications for the latest week.
At least half of the adult U.S. population has been vaccinated against the virus, allowing for broader economic re-engagement. But the pent-up demand unleashed by the resumption of business operations is straining the supply chain and fanning inflation pressures.
In another report on Thursday, the Labor Department said its consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009.
In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008, and followed a 4.2% rise in April. The jump partly reflected the dropping of last spring's weak readings from the calculation. These so-called base effects are expected to level off in June.
Economists had forecast the CPI rising 0.4% in May and vaulting 4.7% year-on-year. Inflation could also get a boost from employers raising wages as they compete for scarce workers, despite employment being still 7.6 million jobs below its peak in February 2020. There are a record 9.3 million unfilled jobs.
Wages increased a solid 0.5% in May, with hefty gains in the leisure and hospitality sector.
The acceleration in inflation will have no impact on monetary policy. Federal Reserve Chair Jerome Powell has repeatedly stated that higher inflation will be transitory. The U.S. central bank slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases.
The Fed has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average. Its preferred inflation measure, the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.1% in April, the biggest rise since July 1992.
"We have not yet seen the peak in inflation, but that should occur in the current quarter, though existing pressures should keep the year-over-year pace elevated for the remainder of 2021," said Sam Bullard, a senior economist at Wells Fargo (NYSE:WFC) in Charlotte, North Carolina.
"We expect inflation to slow more discernibly over the latter half of 2022, but with inflation expectations continuing to firm, core PCE inflation is expected to remain above 2.0% through our forecast horizon."
Though layoffs are subsiding, initial claims remain well above the 200,000 to 250,000 range that is viewed as consistent with healthy labor market conditions. Claims have, however, dropped from a record 6.149 million in early April 2020.
Further decreases in applications are likely as Republican governors in at least 25 states, including Florida and Texas, are cutting off unemployment programs funded by the federal government for residents starting on Saturday.
These states account for about 40% of the economy. The benefits being terminated early include a weekly $300 unemployment subsidy, which businesses say is discouraging the jobless from seeking work.
ECB MAINTAINS COPIOUS STIMULUS EVEN AS RECOVERY TAKES HOLD.
FRANKFURT (Reuters) - The European Central Bank maintained an elevated flow of stimulus as expected on Thursday, fearing that any retreat now would accelerate an already worrisome rise in borrowing costs and choke off the fledgling recovery.
The 19-country euro zone has relied on copious ECB money printing to finance ballooning government deficits, leaving the economy especially vulnerable to any curb in support as it emerges from a pandemic-induced double-dip recession.
"Net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year," the ECB said in a statement.
The ECB has bought around 80 billion euros worth of debt per month under Pandemic Emergency Purchase Programme (PEPP) this quarter, up from around 62 billion euros in the first quarter.
The ECB's reference to the first quarter in Thursday's statement, however, could also mean it may reduce purchases compared the current quarter, giving it a window of 62 billion to 80 billion euros for bond buys.
The decision is unlikely to shake markets as hints from board members including ECB President Christine Lagarde had made clear the ECB would rather err on the side of caution and not risk an early taper of the bank's 1.85 trillion euro PEPP.
Maintaining its long-standing guidance, the ECB also said PEPP would last until March 2022 and that it reserved the right to buy less than its purchase quota or increase it as needed to "maintain favourable financing conditions".
"The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry," the ECB said.
Attention now turns to Lagarde's 1230 GMT news conference, during which she will also unveil fresh economic projections that are likely to show faster growth and inflation.
INFLATION
Weak medium-term inflation prospects are the key rationale for maintaining copious support. But policymakers are also appear concerned that government borrowing costs are inching up, so that a retreat by the ECB might risk setting off potentially dangerous market volatility.
With growth surging, however, justifying "emergency" measures is getting increasingly difficult and several policymakers have spoken openly about the eventual need to phase out PEPP.
As well as nudging up most, if not all, of its growth and inflation forecasts, the ECB could even upgrade its guidance on growth, declaring risks "balanced" rather than tilted to the downside.
Inflation is also surging and last month exceeded the ECB's target of just under 2%, a mark it has undershot for most of the last decade.
But the economy will need another year just to grow back to its pre-pandemic level and the inflation jump is mostly a reversal of last year's energy price plunge, not the start of a new era of price pressures, policymakers have said.
Underlying price pressures, a key focus for the ECB, remain anaemic and wage growth is weak, pointing to excessively low inflation for years to come.
Europe is also far behind the United States in its recovery and is lagging on vaccinations, so that any withdrawal of support ahead of the U.S. Federal Reserve would be seen as a dangerous signal.
U.S. inflation data, due to be published at 1230 GMT, is expected to show a 4.7% increase in prices last month, up from 4.2% in April, with a stronger reading likely to reignite speculation about fewer bond purchases from the Fed.
The end of the emergency buys is coming, however, and policymakers are unlikely to enlarge the scheme or extend it beyond its scheduled end in March 2022 given the economy's solid rebound, economists polled by Reuters said.
That will put pressure on policymakers to start plotting a course beyond the emergency bond buys. Indications of what that might be could come as soon as September, economists say.
As medium-term inflation prospects remain muted, decreasing buying under PEPP is likely to be accompanied by an expansion of the ECB's older and less flexible but open-ended Asset Purchase Programme and signals that some ECB support - even if less generous - will continue well into the future.
WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months, while consumer prices increased further in May as the pandemic's easing grip on the economy continues to boost domestic demand.
Initial claims for state unemployment benefits totaled a seasonally adjusted 376,000 for the week ended June 5, compared to 385,000 in the prior week, the Labor Department said on Thursday. That was the lowest since mid-March 2020 when the first wave of COVID-19 infections barreled through the country, leading to closures of nonessential businesses.
Claims have now declined for six straight weeks. Layoffs are abating, with employers scrambling for labor as millions of unemployed Americans remain at home because of trouble securing child care, generous unemployment benefits and lingering fears of the virus even though vaccines are now widely accessible.
Economists polled by Reuters had forecast 370,000 applications for the latest week.
At least half of the adult U.S. population has been vaccinated against the virus, allowing for broader economic re-engagement. But the pent-up demand unleashed by the resumption of business operations is straining the supply chain and fanning inflation pressures.
In another report on Thursday, the Labor Department said its consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009.
In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008, and followed a 4.2% rise in April. The jump partly reflected the dropping of last spring's weak readings from the calculation. These so-called base effects are expected to level off in June.
Economists had forecast the CPI rising 0.4% in May and vaulting 4.7% year-on-year. Inflation could also get a boost from employers raising wages as they compete for scarce workers, despite employment being still 7.6 million jobs below its peak in February 2020. There are a record 9.3 million unfilled jobs.
Wages increased a solid 0.5% in May, with hefty gains in the leisure and hospitality sector.
The acceleration in inflation will have no impact on monetary policy. Federal Reserve Chair Jerome Powell has repeatedly stated that higher inflation will be transitory. The U.S. central bank slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases.
The Fed has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average. Its preferred inflation measure, the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.1% in April, the biggest rise since July 1992.
"We have not yet seen the peak in inflation, but that should occur in the current quarter, though existing pressures should keep the year-over-year pace elevated for the remainder of 2021," said Sam Bullard, a senior economist at Wells Fargo (NYSE:WFC) in Charlotte, North Carolina.
"We expect inflation to slow more discernibly over the latter half of 2022, but with inflation expectations continuing to firm, core PCE inflation is expected to remain above 2.0% through our forecast horizon."
Though layoffs are subsiding, initial claims remain well above the 200,000 to 250,000 range that is viewed as consistent with healthy labor market conditions. Claims have, however, dropped from a record 6.149 million in early April 2020.
Further decreases in applications are likely as Republican governors in at least 25 states, including Florida and Texas, are cutting off unemployment programs funded by the federal government for residents starting on Saturday.
These states account for about 40% of the economy. The benefits being terminated early include a weekly $300 unemployment subsidy, which businesses say is discouraging the jobless from seeking work.
ECB MAINTAINS COPIOUS STIMULUS EVEN AS RECOVERY TAKES HOLD.
FRANKFURT (Reuters) - The European Central Bank maintained an elevated flow of stimulus as expected on Thursday, fearing that any retreat now would accelerate an already worrisome rise in borrowing costs and choke off the fledgling recovery.
The 19-country euro zone has relied on copious ECB money printing to finance ballooning government deficits, leaving the economy especially vulnerable to any curb in support as it emerges from a pandemic-induced double-dip recession.
"Net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year," the ECB said in a statement.
The ECB has bought around 80 billion euros worth of debt per month under Pandemic Emergency Purchase Programme (PEPP) this quarter, up from around 62 billion euros in the first quarter.
The ECB's reference to the first quarter in Thursday's statement, however, could also mean it may reduce purchases compared the current quarter, giving it a window of 62 billion to 80 billion euros for bond buys.
The decision is unlikely to shake markets as hints from board members including ECB President Christine Lagarde had made clear the ECB would rather err on the side of caution and not risk an early taper of the bank's 1.85 trillion euro PEPP.
Maintaining its long-standing guidance, the ECB also said PEPP would last until March 2022 and that it reserved the right to buy less than its purchase quota or increase it as needed to "maintain favourable financing conditions".
"The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry," the ECB said.
Attention now turns to Lagarde's 1230 GMT news conference, during which she will also unveil fresh economic projections that are likely to show faster growth and inflation.
INFLATION
Weak medium-term inflation prospects are the key rationale for maintaining copious support. But policymakers are also appear concerned that government borrowing costs are inching up, so that a retreat by the ECB might risk setting off potentially dangerous market volatility.
With growth surging, however, justifying "emergency" measures is getting increasingly difficult and several policymakers have spoken openly about the eventual need to phase out PEPP.
As well as nudging up most, if not all, of its growth and inflation forecasts, the ECB could even upgrade its guidance on growth, declaring risks "balanced" rather than tilted to the downside.
Inflation is also surging and last month exceeded the ECB's target of just under 2%, a mark it has undershot for most of the last decade.
But the economy will need another year just to grow back to its pre-pandemic level and the inflation jump is mostly a reversal of last year's energy price plunge, not the start of a new era of price pressures, policymakers have said.
Underlying price pressures, a key focus for the ECB, remain anaemic and wage growth is weak, pointing to excessively low inflation for years to come.
Europe is also far behind the United States in its recovery and is lagging on vaccinations, so that any withdrawal of support ahead of the U.S. Federal Reserve would be seen as a dangerous signal.
U.S. inflation data, due to be published at 1230 GMT, is expected to show a 4.7% increase in prices last month, up from 4.2% in April, with a stronger reading likely to reignite speculation about fewer bond purchases from the Fed.
The end of the emergency buys is coming, however, and policymakers are unlikely to enlarge the scheme or extend it beyond its scheduled end in March 2022 given the economy's solid rebound, economists polled by Reuters said.
That will put pressure on policymakers to start plotting a course beyond the emergency bond buys. Indications of what that might be could come as soon as September, economists say.
As medium-term inflation prospects remain muted, decreasing buying under PEPP is likely to be accompanied by an expansion of the ECB's older and less flexible but open-ended Asset Purchase Programme and signals that some ECB support - even if less generous - will continue well into the future.