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 The economic outlook was brightened further by another report on
Thursday showing a solid increase in wages in the first quarter,
which should keep the Federal Reserve on track to raise interest
rates this year.
"This morning's reports all point to an economy that is doing a lot
better than the near-stagnation in first-quarter GDP suggests," said
Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
Initial claims for state unemployment benefits fell 34,000 to a
seasonally adjusted 262,000 for the week ended April 25, the lowest
reading since April 2000, the Labor Department said.
Though the decline, which far exceeded Wall Street's expectations
for a drop to 290,000, likely exaggerates the labor market's health,
it bolstered views that March's sharp moderation in job growth was
probably an aberration.
Separately, the Commerce Department said consumer spending, which
accounts for more than two-thirds of U.S. economic activity, rose
0.4 percent last month as households stepped up purchases of
big-ticket items like automobiles.
The increase followed a 0.2 percent gain in February and indicated
that consumer spending picked up momentum at the end of the first
quarter, which bodes well for consumption in the April-June period.
While that should boost growth in the second quarter, the rebound in
economic activity could be crimped by an inventory overhang, a
strong dollar and ongoing spending cuts in the energy sector, which
has been hit by lower oil prices.
Another report showed that factory activity in the Midwest
accelerated in April, pushing further away from a 5-1/2-year low hit
in February.
The Institute for Supply Management-Chicago's business barometer
rose to 52.3 from a March reading of 46.3. A reading above 50
indicates an expansion in the region's factory sector.
Stocks on Wall Street fell despite the fairly upbeat economic data,
as Colgate-Palmolive <CL.N> cut its full-year profit forecast for
the second time because of the buoyant dollar.
Sentiment was also hurt as ConocoPhillips <COP.N>, the largest
independent U.S. energy company, reported that its first-quarter
profit fell to $272 million from $2.1 billion a year earlier due to
lower crude prices.
Prices for U.S. government debt fell, with the yield on benchmark
10-year Treasury notes touching near a seven-week high. The dollar
slipped against a basket of currencies.
WAGES ACCELERATING
When adjusted for inflation, consumer spending rose 0.3 percent in
March after being flat in the prior month.
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The economy slowed to a crawl in the first quarter as it struggled
with severe winter weather, a now-settled labor dispute at normally
busy West Coast ports, the strong dollar and lower energy prices,
which have cut into domestic oil production.
The Fed on Wednesday acknowledged the first quarter's sharp growth
moderation, but dismissed it as partly the result of transitory
factors.
Spending last month picked up despite personal income being flat.
But the income weakness will likely prove temporary as the labor
market gradually tightens.
In a fourth report, the Labor Department said the Employment Cost
Index, the broadest measure of labor costs, advanced 0.7 percent
after a 0.5 percent rise in the fourth quarter.
The ECI is widely viewed by policymakers and economists as one of
the better measures of labor market slack.
In the 12 months through March, labor costs jumped 2.6 percent, the
largest rise since the fourth quarter of 2008. They are approaching
the 3 percent threshold that economists say is needed to bring
inflation closer to the Fed's 2 percent target.
Private sector wages and salaries increased 0.7 percent after
gaining 0.5 percent in the prior quarter. They rose 2.8 percent in
the 12 months through March, the biggest gain since the third
quarter of 2008.
"The conditions seem to be in place for labor costs to start
breaking out on the upside, and that would be enough to provide the
Fed with the confidence that the inflation target will be reached,"
said Joel Naroff, chief economist at Naroff Economic Advisors in
Holland, Pennsylvania.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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