U.S. unemployment insurance applications are falling, inflation flat

WASHINGTON (Reuters) - The number of new requests for jobless benefits in the U.S. fell less than expected last week, while factory activity in the north east coast accelerated in March, suggesting that the economy maintains a modest pace of recovery.

Thursday's reports, coupled with data showing the absence of inflationary pressures, supported the commitment of the Federal Reserve to keep its benchmark rates at historic lows for some time.

Initial claims for unemployment insurance fell by 5,000 to a seasonally adjusted rate of 457,000 in the week ended March 13, the Labor Department said. Analysts polled by Reuters had expected the figure down to 455,000.

Moreover, the Federal Reserve Bank of Philadelphia said its index of business conditions in the region rose to 18.9 this month from 17.6 in February. Analysts expected to arrive at 18.0.

Any reading above zero indicates growth in regional manufacturing activity.

A second Labor Department report showed that its Consumer Price Index remained stable seasonally adjusted in February, after rising 0.2 percent in January.

Meanwhile, the underlying price level, which excludes volatile components like food and energy, rose 0.1 percent last month, in January after falling 0.1 percent.

"The jobless claims data to show that the labor market continues to stabilize, but there are few, if any, pressure on U.S. prices, which should allow the Fed to keep interest rates low for some time" said John Doyle, currency strategist at Tempus Consulting in Washington.

The data of applications for unemployment benefits covering the period of the survey for the influential non-farm payrolls report from the Government, to be published on Friday, April 2.

Analysts expect the economy to show a job growth in March, boosted by the temporary appointment to the 2010 Census. About 8.4 million jobs have been lost since the onset of recession in December 2007.

Because what he said was a modest economic recovery with low rates of utilization of installed capacity, the U.S. central bank this week renewed his pledge to keep interest rates at record lows for an extended period.

Labor market stabilization

Although the weekly data requests for unemployment benefits has not made significant declines after sharp falls in the second half of 2009, other employment indicators suggest that the labor market is stabilizing, encouraging the idea that the economy may be closer to creating jobs.

The employment component of the index of the Philly Fed March rose to its highest level since August 2007. Analysts said weekly claims probably remained high for the loss of jobs in the small business sector.

"We assume that most of the flow of new layoffs comes from the small business sector, which remains very depressed in absolute and relative terms compared to large enterprises," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

With the labor market still weak, inflationary pressures are likely to remain nil. Although the drop in energy prices weighed on consumer prices last month, inflation still trending lower on an annual basis.

Compared to February last year, core inflation rose 1.3 percent, slowing from the January annual increase to 1.6 percent. Analysts were expecting core prices to rise 1.4 percent annually.

Although the economic recovery that began in the second half of 2009 remains in place, there are some signs that it may be losing momentum.

The index of leading economic indicators the Conference Board, which forecasts economic trends with an advance of six to nine months, rose 0.1 percent, completing 11 months of gains, after surging 0.3 percent in January.

"The indicators suggest a slow recovery this summer (northern hemisphere). Looking ahead, the big question remains the strengthening of demand. Without an increase in consumer demand, employment growth likely to be minimal over the next few months" said Ken Goldstein, Conference Board economist.

In a separate report, the Chicago Fed said its index of manufacturing sector in the U.S. Midwest rose in January, led by a surge in auto production.

The index rose 1.9 percent to a seasonally adjusted level 83.1 from an upwardly revised to 81.5 in December, initially reported as 84.1.

Compared with January 2009, production increased 0.6 percent, less than the 2.1 percent increase seen nationwide.

Auto production in the Midwest rose 4.5 percent after falling 0.8 percent in December. On-year, the increase was 22.7 percent.

(Reporting by Lucia Mutikani)