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Drop in jobless claims indicates improvement

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WASHINGTON (1/17/14)--Initial jobless claims dropped for the first full week of 2014, indicating continued labor market improvement.
First-time filings fell by 2,000 to 326,000, according to Labor Department data published Thursday. Initial claims for the week ending Jan. 4 were revised down, to 328,000 from 330,000.
Moody's said the number was "slightly higher than we anticipated" ( Jan. 16), while a Dow Jones poll of economists predicted 331,000 claims (The Wall Street Journal Jan. 16).
The four-week moving average of initial claims fell by 13,500 to 335,000--pushed by decline of 19,000 over the past two weeks. Moody's said that the measure appears to be stabilizing after the traditionally volatile holiday season, but said that another week of data will be required to make a more confident analysis. The Wall Street Journal pointed out that many companies let holiday employees go in the first week of January.
Labor Department data also showed continuing claims increased to 3.03 million for the week ending Jan. 4. A four-week moving average of the measure rose to 2.908 million from 2.87 million.
The number of people on emergency benefits rose 63,626 to 1.35 million for the week ending Dec. 28--the day that the program ended. Moody's predicted that Congress' continued failure to reinstate these benefits will hold back real GDP growth this year by between 0.1 and 0.2 percentage points. A deal to restore the program fell through Tuesday.
The ratings and research firm also said that the withdrawal of benefits may explain the contraction of the labor force that drove December's 0.3% unemployment rate drop, to 6.7%. It expects the labor force to continue to shrink in January, and predicts that trend will shave an additional 0.2% off the unemployment rate.
Signs of long run labor market improvement include people on extended benefits numbering just 145--a drop of three on a weekly basis and about 850 on an annual basis. The number of Americans on emergency unemployment benefits when they ran out was down by more than 700,000 on an annual basis. Initial claims not seasonally adjusted were also down 4% on a year-over-year-basis.
States reporting the biggest drop in first-time claims for the week ending Jan. 4 were Michigan, New Jersey and Massachusetts. Those reporting the largest increase were New York, Georgia and South Carolina.

1st increase in 3 months seen in cost of living

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WASHINGTON (1/17/14)--The most prominent measure of inflation rose in December for the first time in three months, according to U.S. Labor Department data.

The consumer price index increased by a six-month high of 0.3% after stagnating in November and receding by 0.1% in October. The core CPI, which excludes fuel and food costs, only expanded by 0.1%, down from 0.2% in November.

Cost of living increases were driven by the price of energy, a measure of which rose by 2.1%. Seasonally adjusted gasoline prices, which were up by 3.1%, led the expansion. The CPI for food and beverage, meanwhile, was only up by 0.1%.

Core CPI growth was driven by rent indexes, which were up by 0.2% after growing by 0.3% in November. Measures of new and used vehicles, medical care, household furnishings and airfare either stagnated or declined ( Jan. 16). Medical goods and services plunged particularly dramatically, with prescription drug costs falling by 0.8%--their largest drop since 1967 ( Jan. 16).

On an annual basis, core CPI, energy and food inflation were at three-year lows. Core inflation finished 2013 at 1.5%, a decrease of 0.2 percentage points from 2012. The energy index rose by 0.4%, down from rates above 7% in 2010 and 2011. Moody's said that the acceleration in food prices declined to their smallest increase since 1976.

Despite prices increasing only modestly throughout the year, real income barely grew. Hourly earnings adjusted for inflation were only up by 0.2% in 2013, after a 0.3% drop in December.
Moody's is predicting that prices will rise at a faster pace in 2014, driven by wider economic growth. The ratings and research firm said that the apparent end of fiscal policy uncertainty in Washington D.C. has improved its outlook, but that relatively weak inflation should keep the Federal Reserve from tapering its asset purchases by too much.

Bloomberg said that demand-push price increases in rental housing and clothing indicates that the Fed has succeeded in reversing deflationary pressures, allowing the central bank to continue to reduce quantitative easing over the coming months. It highlighted recent remarks by Chicago Fed President Charles Evans about a possible reduction in asset-purchases allowing the bank to focus on keeping nominal interest rates near zero for a longer amount of time.