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Layoffs ease a bit and inflation retreats

/ Source: staff and news service reports

Maybe the Federal Reserve's "wait-and-see" attitude will pay off.

The job market signaled on Thursday that layoffs were easing again as fewer Americans sought unemployment benefits last week. And in good news for businesses and consumers, wholesale inflation dropped in June amid weakening gas prices.

The Labor Department said that weekly applications for jobless benefits dropped 22,000 to a seasonally adjusted 405,000, the lowest level in almost three months.

The government said the total was increased by 11,500 state workers from Minnesota, who have filed applications because of that state's government shutdown.

Even with last week's decline, applications have now topped 400,000 for 14 weeks, evidence that the job market has weakened since earlier this year.

Applications had fallen in February to 375,000, a level that signals healthy job growth. They stayed below 400,000 for two months, then surged to an eight-month high of 478,000 in April and have declined slowly since then.

That slow decline, if it continues, may be playing into the hands of the Fed's expectation that the economy will pick up again in the second half of the year.

After a convincing pickup in growth last year, the economy slowed sharply in the first quarter and has been limping along since. First quarter gross domestic product edged up just 1.9 percent. The latest monthly data, especially the surprising collapse in job growth in May and June, have raised concerns that the recovery may be stalling out.

For now, central bankers don't see that happening. Fed chairman Ben Bernanke told Congress in testimony on Wednesday that while they've trimmed their growth forecasts, Fed forecasters believe growth will rise in the second half of the year to between 2.7 percent and 2.9 percent for the full year. The Fed forecast sees the economy gathering more steam next year, expanding at a rate of 3.3 to 3.7 percent.

"Once the temporary shocks that have been holding down economic activity pass, we expect to see again the effects of (recent Fed policy) reflected in stronger economic activity and job creation," Bernanke told the House Financial Services Committee.

But Bernanke also acknowledged that factors such as high unemployment, a weak housing market and tight credit could continue to weigh on the economy.

"The possibility remains that the recent economic weakness may prove more persistent than expected," he said.

Bernanke returned to Capitol Hill on Thursday and reiterated that the Fed was ready to step in with more stimulus if the economic recovery stumbles.

Economists weren't popping any Champagne corks. "I wouldn't read too much into them at all, they may be encouraging, but the Fed isn't going to react to any one particular number. They're going to look for a trend well below 400,000," said Scott Brown, chief economist at Ratmond James.

Inflation seems benign. Companies paid less for raw materials and factory goods in June, evidence that inflation pressures are weakening as gas prices fall.

The Labor Department says that the Producer Price Index, which measures price changes before they reach the consumer, declined 0.4 percent in June, the steepest drop since February 2010. Wholesale energy prices fell 2.8 percent, the biggest decline in nearly two years.

Gas prices averaged $3.65 a gallon on Wednesday, according to AAA. That's down from nearly $4 in early May.

Food prices rose 0.6 percent in June, mostly because of higher fruit and melon costs.

Excluding the volatile food and energy categories, the so-called core index rose 0.3 percent, driven largely by a jump in prices for pickup trucks.

U.S. retail sales edged up 0.1 percent in June, after dipping 0.1 percent in May, as a rebound in receipts from auto dealers offset the biggest drop in gasoline sales in a year, the Commerce Dept said.

Sales excluding gasoline rebounded 0.3 percent after declining 0.2 percent in May