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Fewer Americans apply for jobless benefits

Fewer people applied for unemployment benefits last week, potentially reversing a recent jump in applications the previous week.
/ Source: staff and news service reports

There was some good news on the economy Thursday and some just OK news.

On the crucial labor front, applications for jobless benefits tumbled in the latest week. The fall reversed almost all of the sharp rise seen in the previous week, which suggested that the prior increase may have been due to temporary factors.

Meanwhile, retail sales rose in April for the 10th straight month, but much of that gain came from higher gas prices. It was also the smallest gain in nine months. Higher gas prices have helped drive overall inflation and raised worries that consumers will slow spending as long as they have to pay more to fill their tanks.

"The rise in retail sales (was) basically related to higher gasoline prices. Overall the report was good because it was positive, but the economy and consumers are still having trouble," said Eugenio Aleman, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The Labor Department said Thursday that the number of people seeking benefits dropped 44,000 to a seasonally adjusted 434,000. That is the steepest weekly fall since February 2010.

The drop suggests that the increase of 47,000 reported two weeks ago was mostly due to temporary factors. The state of New York reported that applications jumped by more than 24,000 two weeks ago, because more school systems had spring break than usual. That led to a spike in temporary layoffs.

Still, applications are far above the 375,000 level typically consistent with sustainable job growth. Weekly applications peaked during the recession at 659,000.

"Probably the key thing here is the ongoing weakness in initial claims. A reading above 400,000 on the four-week average verifies what the Fed has been saying about the weakness in the labor market and therefore the recovery," said Andrew Wilkinson, senior market analyst with Interactive Brokers Group.

Consumers had to shell out more for gasoline, clothing and autos in April, pushing retail sales up for a 10th straight month. But much of the gain came from a surge in gasoline prices.

The Commerce Department said retail sales rose 0.5 percent in April after a 0.9 percent increase in March. Excluding a 2.7 percent jump in gasoline sales reflecting higher prices, the increase in retail sales was a much smaller 0.2 percent.

Gasoline pump prices have been surging in recent months, with the nationwide average hovering near $4 a gallon. Economists are worried that higher fuel costs will leave motorists with less money to spend on other items, and that will slow the overall economy.

U.S. companies are paying more for raw materials and factory goods, mainly because energy prices are higher.

The Labor Department said the Producer Price Index, which measures price changes before they reach the consumer, rose 0.8 percent last month. That's slightly above the 0.7 percent gain in March. Excluding the volatile food and energy categories, the core index increased 0.3 percent, the same as the previous month.

In the past 12 months, the index has increased 6.8 percent, the biggest gain in nearly three years. Outside of food and energy, prices rose 2.1 percent, up from a 1.9 percent gain in March. The price of civilian aircraft rose by the most in nearly seven years, pushing up the core index.

Manufacturing remains a bright spot for the economy, however. Businesses added to their stockpiles for a 15th straight month in March while their sales rose for a ninth consecutive month, suggesting factory production will remain strong in coming months.

The Commerce Department says that businesses increased inventories 1 percent in March while sales rose an even larger 2.2 percent, the biggest sales gain in a year. Healthy gains in sales and inventory restocking should translate into strong orders to U.S. factories in coming months, spurring further gains in industrial production and manufacturing employment.